ROBLEMS    AND    EXERCISES 

TO  ACCOMPANY 

CLAY'S  ECONOMICS  FOR  THE 
GENERAL  READER 

AND 

ELY'S  OUTLINES  OF  ECONOMICS 


BY 

H.  GORDON  HAYES 

Professor  of  Economics  in  Ohio  State  University 


THE  MACMILLAN  COMPANY 
1922 

All  rights  reierved 


PROBLEMS  AND  EXERCISES 

TO  ACCOMPANY 
CLAY'S  ECONOMICS  FOR  THE  GENERAL  READER 

AND 

ELY'S  OUTLINES  OF  ECONOMICS 


THE    MACMILLAN   COMPANY 

NEW  YORK    •    BOSTON   •    CHICAGO   •    DALLAS 
ATLANTA    •    SAN  FRANCISCO 

MACMILLAN  &  CO.,  LIMITED 

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MELBOURNE 

THE  MACMILLAN  CO.  OP  CANADA,  LTD. 

TORONTO 


PROBLEMS    AND    EXERCISES 

TO  ACCOMPANY 

CLAY'S  ECONOMICS  FOR  THE 
GENERAL  READER 

AND 

ELY'S  OUTLINES  OF  ECONOMICS 


BY 

H.  GORDON  HAYES 

Professor  of  Economics  in  Ohio  State  University 


Jporfe 

THE  MACMILLAN  COMPANY 
1922 

All  right!  reserved 


J   ftf  "THI)  TJtflt£D  STATES  OF  AMERICA 


COPYRIGHT,  1921, 
BT  THE  MACMILLAN  COMPANY. 


Set  up  and  electrotjped.     Published  October,  1921. 


Press  of 

J.  J.  Little  &  Ives  Company 
New  York,  U.  S.  A. 


PREFACE 

THESE  problems  were  prepared  during  the  past  school 
year  for  the  use  of  students  in  Elementary  Economics  at 
Ohio  State  University  in  connection  with  Clay's  Economics 
for  the  General  Reader  and  Ely's  Outlines  of  Economics. 
The  arrangement  follows  the  order  of  assignments  in  the 
two  books  that  has  been  found  satisfactory.  Obviously,  the 
subject  matter  of  the  outline  and,  to  a  considerable  degree, 
its  arrangement  were  determined  by  the  contents  of  the  two 
books  rather  than  by  the  judgment  of  the  author. 

Several  of  the  problems  are  taken  from  Professor  F.  M. 
Taylor's  Principles  of  Economics  and  from  his  examination 
lists.  A  few  are  taken  from  the  author's  Problems  and  Exer- 
cises in  Economics  published  by  Henry  Holt  and  Company. 

H.  GORDON  HAYES. 
Columbus,  Ohio. 

September,  1921. 


CONTENTS 

PAGE 

I.  INTRODUCTION 

A.  Introductory 

Clay,    chapter    I I 

B.  The  Nature  and  Scope  of  Economics 

Ely,    chapter    I  I 

C.  The  Characteristics  of  the  Present  Economic  System 

Ely,  chapter  II    2 

D.  The  Evolution  of  Economic  Society 

Ely,    chapter    III  2 

E.  The  Evolution  of  Economic  Society  (Continued) 

Ely,    chapter    IV  3 

F.  The  Economic  Development  of  the  United  States 

Ely,  chapter    V  3 

G.  The    Economic    Development    of    the    United    States    (Con- 

tinued) 
Ely,   chapter   VI  4 

H.     Elementary  Economic  Concepts 

Ely,  chapter   VII  4 

II.  THE  PRODUCTION  AND  CONSUMPTION  OF  WEALTH 


A.    The  Circulation  of  Wealth 


Clay,   chapter   XII 
Production 

Ely,   chapter    VIII  .. 
The  Division  of  Labor 

Clay,  chapter"  ll. .  t  ^ 


6 

7 

_. 8 

D.  The  Organization   of   Production 

Clay,  chapter  III  8 

E.  Consumption 

Ely,  chapter  IX  9 

III.    VALUE  AND  PRICE 

A.    Value  and   Price 

Ely,  chapter  X II 

vii 


viii  CONTENTS 

PAGE 

B.  Value  and  Price    (Continued) 

Ely,  chapter  XI 13 

C.  Monopoly  Price 

Ely,  PP-   189-190;  201-207  16 

D.  Value 

Clay,   chapter   XIV  17 

E.  Value  (Continued) 

Clay,    chapter   XV 18 

F.  Speculation  and  Price 

Clay,  chapter  IV 18 


IV.  THE   ORGANIZATION    OF   BUSINESS    ENTERPRISE 

A.  Capital  and  Its  Organization 

Clay,  chapter   V  20 

B.  Business  Organization:  The  Corporation 

Ely,  pp.   212-230 » 20 

C.  Competition  and  Association 

Clay,  chapter  VL 22 

D.  Monopoly  and  Combination 

Clay,   chapter   VII  22 

E.  Monopoly   and   Combination    (Continued) 

Clay,  chapter   VIII  22 

F.  Monopoly 

Ely,  pp.   100-200;  207-210  23 

G.  Trusts  and  Combinations 

Ely,  pp.  230-247  23 

V.  MONEY    AND    BANKING 

A.  Money 

Clay,  chapter  IX  24 

B.  Money 

Ely,  chapter  XIV      24 

C.  Banking  and  Credit 

Clay,  chapter  X  26 

D.  Credit  and  Banking 

Ely,   chapter   XV  27 

E.  The  Level  of  Prices 

Clay,  pp.   195-203  29 

F.  Other    Problems   in   Money   and   Banking 

Ely,  chapter  XVI 30 

G.  Unemployment  and  Overproduction 

Clay,  chapter  XIII 33 


CONTENTS  ix 


VI.    FOREIGN  EXCHANGE  AND  INTERNATIONAL  TRADE 

PAGE 

A.  International  Trade 

Clay,  pp.    204-213 34 

B.  International  Trade 

Ely,   chapter   XVII  35 

C.  Protection  and  Free  Trade 

Ely,   chapter   XVIII  38 


VII.    THE  DISTRIBUTION  OF  WEALTH 

A.  Distribution  as  an  Economic  Problem 

~~~Elyr chapter  XIX  42 

B.  Wages 

-  zly,   chapter  XXI 44 

C.  Wages 

Clay,   chapter   XVI  45 

D.  Wages  (Continued) 

Clay,   chapter   XVII 45 

E.  Labor  Problems 

Ely,   chapter   XXII  46 

F.  Labor  Legislation 

Ely,  chapter   XXIII  50 

G.  The  Rent  of  Land 

^Siy^"chaptef"XX  50 

H.    Rent 

Clay,   chapter   XIX  52 

I.    Rent  (Continued) 

—JClay,   chapter  XX 52 

J.    Interest 

Ely,    chapter   XXIV  53 

K.     Profits 

Ely,  chapter  XXV  54 

L.    Interest  and   Profits 

Clay,   chapter  XVIII 54 

M.    The   Personal   Distribution   of   Wealth 

Ely,  chapter  XXVI 55 


VIII.    SELECTED   ECONOMIC   PROBLEMS 

A.  Transportation 

Ely,   chapter   XXVII 57 

B.  Insurance 

Ely,  chapter  XXVIII  58 


x  CONTENTS 

"^^v  PAGE 

C.  Agricultural  Problems 

Ely,    chapter    XXIX 59 

D.  Socialism 

Ely,   chapter   XXX 60 

IX.  PUBLIC  FINANCE 

A.  Public  Expenditures 

Ely,  chapter  XXXI  62 

B.  Public  Receipts   from  Loans  and  Government  Ownership 

Ely,    chapter    XXXII 62 

C.  Public  Receipts :   Derivative  Revenues,  Fees,  Special  Assess- 

ments, and   Taxes 
Ely,    chapter    XXXIII  63 

D.  Public    Receipts :    Federal,    State,    and    Local   Taxes 

Ely,  chapter  XXXIV 64 

X.  A  CRITIQUE  OF  THE  PRESENT  ECONOMIC  SYSTEM 

A.  The  State  and  the  Economic  Organization 

Clay,   chapter   XXI  65 

B.  The  State  and  the  Economic  Organization   (Continued) 

Clay,   chapter   XXII 65 

C.  Wealth   and  Welfare— The  Measure  of  Wealth 

Clay,   chapter   XXIII  66 

D.  Wealth  and  Welfare — Economic  Influences  on  Welfare 

Clay,    chapter   XXIV  66 

E.  Wealth  and  Welfare — Business  and  Morality 

Clay,  chapter  XXV  , 67 


PROBLEMS  AND  EXERCISES 

TO   ACCOMPANY 
CLAY'S  ECONOMICS  FOR  THE  GENERAL  READER 

AND 

ELY'S  OUTLINES  OF  ECONOMICS 


PROBLEMS  AND  EXERCISES 

TO  ACCOMPANY 

CLAY'S  ECONOMICS  FOR  THE  GENERAL  READER 

AND 

ELY'S  OUTLINES  OF  ECONOMICS 

I.    INTRODUCTION 

A.    INTRODUCTORY 
Clay,  Ch.  I 

1.  I.    "Some  study  of  Economics  is  at  once  a  practical 
necessity  and  a  moral  obligation."    Explain  and  illustrate  each 
of  these  two  points. 

2.  2.     "We  are  seeking  principles  in  our  study  of  eco- 
nomic problems."     Why? 

3.  3.     "This  is  all  right  in  theory  but  it  won't  work  in 
practice/'     Explain  what  is  meant.     Show  that  this  is  an 
unfortunate  statement. 

4.  4.     "Explanation  is  not  justification."    Illustrate. 

B.    THE  NATURE  AND  SCOPE  OF  ECONOMICS 
Ely,  Ch.  I 

5.  I.    What  is  the  objective  point  of  the  science  of  eco- 
nomics ?    Is  it  to  teach  individuals  how  to  get  rich  ?    Discuss. 

6.  2.     Did  the  rise  in  wages  from  1915  to  1920  indicate 
social  improvement  or  the  reverse?    Did  this  wage  increase 
mean  a  hardship  to  any  one  class?    Explain. 

7.  3.     "Our     economic     society     is     an     evolutionary 

i 


2       PROBLEMS  \ND  EXERCISES  IN  ECONOMICS 

product."    What  is  the  significance  of  this  statement  to  stu- 
dents of  economics? 

8.  4.     "If  the  supply  of  an  article  is  reduced  the  price  of 
that  article  will  tend  to  rise."    Is  this  an  economic  law  ?    Cite 
three  statutory  laws  that  deal  with  economic  phenomena. 

G    THE  CHARACTERISTICS  OF  THE  PRESENT  ECONOMIC 

SYSTEM 

Ely,  Ch.  II 

9.  I.     Does  the  State  participate  in  economic  activity  to 
a  greater  or  a  less  degree  than  it  did  thirty  years  ago?    Ac- 
count for  the  change  if  any. 

10.  2.     "The  degree  to  which  the  division  of  labor  (spe- 
cialization) is  carried  depends  upon  the  extent  of  the  market." 
Is  this  true  ?   Discuss. 

11.  3.     What  does  Ely  mean  by  exclusive  control  in  his 
definition  of  private  property  ?   Does  he  mean  that  the  State  is 
excluded  from  control  ?   Explain. 

12.  4.     Give  several  illustrations  to  show  the  distinction 
between  negative  and  positive  freedom. 

*3'  5-     "The  automatic  character  of  the  present  industrial 
system  manifests  itself  thru  competition."    Explain. 

14.  6.     Is  there  any  competition  between  book  publishers 
and  automobile  manufacturers?    Theatre  managers  and  hat 
manufacturers  ?    Physicians  and  music  teachers  ?    Explain. 

15.  7.    Account  for  the  tendency  toward  monopoly. 

D.    THE  EVOLUTION  OF  ECONOMIC  SOCIETY 
Ely,  Ch.  Ill 

1 6.  i.     Account  in  a  general  way  for  the  fact  that  the  ar- 
rangements under  which  society  makes  its  living  change  from 
time  to  time. 


INTRODUCTION  3 

17.  2.     Why  did  the  feudal  (manorial)  system  give  way  to 
the  gild  system  ?    The  gild  system  to  the  domestic  system  ? 

18.  3.     Have  we  anything  in  our  economic  system  today 
that  is  mercantilistic  ?    Explain. 

E.    THE  EVOLUTION  OF  ECONOMIC  SOCIETY  (Continued) 
Ely,  Ch.  IV 

19.  i.     Just  what  was  the  industrial  revolution?     When 
did  it  take  place  ? 

20.  2.     Were  the  mechanical  inventions  at  all  responsible 
for  the  demand   that  government   restrictions  on   industry 
should  be  withdrawn  ?    Discuss. 

21.  3.     Argue  that  the  policy  of  laissez-faire  was  more 
justifiable  before  than  after  the  industrial  revolution.     Did 
Adam  Smith's  advocacy  of  liberty  precede  or  follow  this 
revolution  ? 

22.  4.    Does  the  policy  of  laissez-faire  prevail  with  us 
today?    Illustrate. 

F.    THE  ECONOMIC  DEVELOPMENT  OF  THE  UNITED  STATES 

Ely,  Ch.  V 

23.  i.     Argue  that  sectionalism  has  been  well  nigh  in- 
evitable in  the  U.  S.    May  we  expect  more  or  less  sectionalism 
in  the  future  than  we  have  had  in  the  past?    Why? 

24.  2.     What  is  our  population  according  to  the  19*0  cen- 
sus?   Compare  the  increase  during  the  last  decade  with  the 
increase  for  the  preceding  decades. 

25.  3.     Is  the  movement  to  the  city  due  to  economic  fac- 
tors ?    Discuss. 

26.  4.     What  are  the  economic  and  the  non-economic  fac- 
tors in  the  negro  problem  ?    In  the  immigration  problem  ? 


4       PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

27.  5.     What  are  the  terms  of  the  immigration  law  effec- 
tive July  i,   1921  ?     Account  for  the  passage  of  this  law. 
What  arguments  were  urged  against  its  passage  ? 

G.    THE  ECONOMIC  DEVELOPMENT  OF  THE  UNITED  STATES — 

(Continued) 

Ely,  Ch.  VI 

28.  i.     Why  did  the  laws  restricting  industrial  activity 
fail  dismally  in  the  American  Colonies  ? 

29.  2.     "The  industrial  change  which  was  a  revolution  in 
England  was  an  evolution  in  America."     Account  for  this 
difference. 

30.  3.     Have  we  in  America  suffered  any  from  the  factory 
system  ?    Discuss. 

31.  4.     How  has  the  corporation  worked  toward  the  con- 
centration of  industrial  control? 

32.  5.     Distinguish  between  centralization  and  integration 
of  industry. 

33.  6.     Discuss  the  advisability  of  maintaining  a  laissez- 
faire  policy  in  regard  to  transportation. 

34.  7.     Note  Ely's  statement  at  bottom  of  page  94.     Do 
you  agree?     Discuss. 

H.     ELEMENTARY  ECONOMIC  CONCEPTS 

Ely,  Ch.  VII 

• 

35.  i.     Have  you  ever  engaged  in  economic  activity?    If 
so,  what  motive,  or  motives,  prompted  you  to  do  so  ? 

36.  2.     Make  a  list  of  the  motives  to  business  activity  that 
perhaps  characterize  (a)  a  student  canvasser;  (b)  a  college 
graduate  entering  a  profession;  (c)  a  manufacturer;  (d)  an 
actor;  (e)  an  unskilled  street  laborer. 


INTRODUCTION  5 

37.  3.     What    motives    to    business    activity    are    most 
worthy;  least  worthy? 

38.  4.     "A  leading  motive  to  the  economic  activity  of  the 
rich  man  in  business  is  the  desire  to  win  the  game."    Do  you 
agree?     If  so,  do  you  believe  that  this  should  be  added  to 
Ely's  list? 

39.  5.     "Economic  goods  are  those  in  the  use  of  which 
society   must  economize."     Do   you   accept   this   as   sound? 
Compare  with  Ely's  definition. 

40.  6.     Show  that  waiting  is  involved  in  the  production 
of  a  pair  of  shoes. 

41.  7.     Name  a  good  the  production  of  which  involves 
but  little  risk;  one  that  involves  considerable  risk.     Is  the 
risk  in  the  second  one  usually  eliminated  by  insurance? 

42.  8.     "Wealth  consists  of  material  things.    A  property 
right  is  the  liberty  to  enjoy  benefits  of  wealth." 

a.  How  does  this  terminology  compare  with  Ely's 
terminology  on  page   109? 

b.  If  a  government  bond  were  destroyed,  would  the 
wealth  of  the  country  be  reduced?    A  farm  mortgage? 
A  share  of  stock  in  the  Big  Four  Railroad? 

c.  Is  there  any  reason  for  not  taxing  both  a  farm  and 
the   mortgage   held   against   it?     Both   a   corporation's 
plant  and  the  shares  of  its  capital  stock  held  by  the 
owners  ? 

43.  9.     May  a  violin  be  both  a  production  good  and  a 
consumption  good?     Explain. 

44.  10.     Give  illustrations  of  each  of  the  categories  indi- 
cated in  Figure  i,  page  HI. 

45.  ii.     Explain  the  point,  page   113,  in  regard  to  the 
inclusion  of  railways  in  the  estimation  of  national  wealth. 

46.  12.     Is  the  production  of  an  automobile  truck  an  ad- 
dition to  the  national  income  or  to  the  national  product? 


II.    THE  PRODUCTION  AND  CONSUMPTION  OF 

WEALTH 

A.    THE  CIRCULATION  OF  WEALTH 
Clay,  Ch.  XII 

47.  i.     "The  immediate  test  as  to  whether  an  article  or  a 
service  is  wealth  is,  does  it  command  a  price."     Is  this  state- 
ment in  agreement  with  Clay?      Discuss. 

48.  2.     What  is  the  test  as  to  whether  one  is  at  all  para- 
sitic economically?     Illustrate. 

49.  3.     Why  speak  of  the  value  of  a  house  as  "so  many 
years  purchase  of  the  rent  it  will  yield?" 

50.  4.     Show    the    effect    upon    the    demand    for    farm 
products  of  an  increase  in  the  efficiency  of  coal  miners;  the 
effect  of  an  increase  in  the  supply  of  farm  products  upon  the 
demand  for  coal  in  manufacturing  industries. 

51.  5.     "Supply  is  demand,  demand  is  supply."    Explain. 

52.  6.     If  we  should  cease  to  employ  domestic  and  per- 
sonal servants,  what  would  be  the  long  time  effect  upon  the 
volume  of  employment?    The  short  time  effect? 

53.  7-     "Opposition  to  the  introduction  of  labor   saving 
machines  is  not  due  to  the  possible  long  time  effect,  but  to 
the  possible  short  time  effect."     Is  this  sound?     Explain. 

54.  8.     "The  introduction  of  machinery  tends  to  be  to  the 
immediate  advantage  of  the  employer;  the  immediate  disad- 
vantage of  the  employee;  the  ultimate  advantage  of  the  entire 
society."    Is  this  sound?    Explain. 

6 


WEALTH  PRODUCTION  AND  CONSUMPTION   7 

B.    PRODUCTION 
Ely,  Ch.  VIII 

55.  i.     "The  only  real  producers  are  the  miners,  lumber- 
men, and  farmers ;  for  they  are  the  only  ones  who  add  some- 
thing to  the  total  wealth."     Show  that  there  is  no  essential 
difference  in  the  contribution  of  the  farmer,  the  miller,  the 
baker,  the  grocer,  and  the  delivery  man. — T. 

56.  2.     A  country  inn-keeper  hires  a  man  to  cripple  the 
automobiles  of  the  passers-by.     Is  this  man  a  producer? 

57.  3.     "The  car  company  was  not  responsible   for  the 
accident,  but   I  got  $800   damages   for   my  client.     I  kept 
$400." — A  lawyer.    Did  the  lawyer  render  productive  services 
in  pleading  this  case?    Discuss  fully. 

58.  4.     Show  that  most  of   the   productive   work   in  a 
community  must  result  in  social  service. 

59.  5.     "Capital  is  the  product  of  labor  and  nature,  so  it 
should  not  be  said  to  be  an  independent  factor."    Discuss. 

60.  6.     Did  we  abstain  (postpone  consumption)  when  we 
constructed  the  Panama  Canal?     If  so,  from  what? 

61.  7.     "The  common  pursuit  of   forestry  as  a  private 
business  almost  had  to  wait  until  capital  became  relatively 
very  abundant."     Why  should  this  be  true  of  forestry  more 
than  of  wheat  raising?     What  is  the  meaning  of  "capital" 
in  this  statement? — T. 

62.  8.     How  are  the  relative  amounts  of  labor  that  are 
devoted  to  producing  bread  and  the  equipment  for  producing 
bread  determined?     What  would  happen  if  we  should  tend 
to  have  relatively  too  much  of  the  one  and  too  little  of  the 
other  ? 

63.  9.     Select  three   illustrations   of   the   localization   of 
industry  from  the  list  given  on  pages  128  and  129  and  specify 
which  of  the  causes  are  applicable  in  each  case. 


8       PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

C.    THE  DIVISION  OF  LABOR 
Clay,  Ch.  II 

64.  i.     (a)  Estimate  the  number  of  persons  that  have  co- 
operated in  the  production  of  one  suit  of  clothes. 

(b)  Estimate  the  time  which  it  would  take  you  to 
make  a  suit  if  you  were  to  do  all  the  work  alone.  How 
long  would  it  take  you  to  earn  enough  money  to  buy  a 
suit? 

65.  2.     "By  our  planning  the  work  minutely  the  laborers 
produce  more  than  would  otherwise  be  possible." — A  manu- 
facturer.   Is  careful  specification  by  the  manufacturer  thereby 
justifiable  ?     Explain. 

66.  3.     Specify  in  detail  what  gains  might  accrue  from 
the  combination  of  two  furniture  factories  each  employing 
400  men?    What  losses? 

67.  4.     Should  you  expect  the  aeroplane  and  the  wireless 
telegraph  to  influence  the  degree  of  specialization?     Explain. 

68.  5.     (a)  "The  political  boundary  lines  in  Europe  are  a 
great  hindrance  to  the  extension  of  the  division  of  labor." 
Does  this  seem  to  be  reasonable?     Explain. 

(b)  If  each  one  of  our  states  were  a  separate  nation, 
would  we  be  likely  to  have  less  specialization  than  we 
have  today  ?  Explain. 

69.  6.     What  tends  to  be  the  effect  of  harbor  facilities, 
steamships  and  cables  upon  specialization?    The  effect  of  a 
protective  tariff?    Explain. 

D.    THE  ORGANIZATION  OF  PRODUCTION 
Clay,  Ch.  Ill 

70.  i.     Contrast  the  method  of  co-ordinating  the  various 
specialists  in  our  industrial  system  with  the  method  of  co- 
ordinating the  various  specialists  in  a  drafted  army. 


WEALTH  PRODUCTION  AND  CONSUMPTION   9 

71.  2.     "This  firm  pays  its  laborers  80  cents  an  hour  and 
charges  its  customers  $1.50  an  hour  for  the  laborer's  services. 
It   either   underpays   the   laborers   or   overcharges   the   cus- 
tomers."   Discuss. — T. 

72.  3.     Argue  that  the  presumption  is  that  the  existing 
middlemen  are  (i)  performing  a  necessary  function,  (2)  at  a 
reasonable  cost  to  consumers.     If  they  are  not,  what  would 
tend  to  happen  ? 

73.  4.     Why  doesn't  the  farmer  sell  his  produce  to  the 
consumer?     Why  doesn't  the  grocer  buy  directly   from  the 
farmer?     Why  don't  the  manufacturer  and  consumer  work 
together  to  eliminate  the  middleman? 

74.  5.     Name  an  "organizer"  who  was  appointed  by  the 
government ;  one  who  has  appointed  himself.     Can  one  who 
is  the  organizer  of  an  industry  because  of  inherited  wealth 
or  family  connection  be  said  to  be  self-appointed?    Discuss. 

75.  6.     It  is  sometimes  said  that  the  appointment  of  rela- 
tives to  positions  of  responsibility  by  the  head  of  a  business 
tends  to  reduce  the  efficiency  of  the  labor  force.    Is  there  any 
reason  why  this  should  be  true? 

E.    CONSUMPTION 
Ely,  Ch.  IX 

76.  I.     A  householder  has  six  tons  of  coal  in  his  base- 
ment.   The  price  of  coal  becomes  nine  dollars  per  ton.    Under 
what  conditions  will  he  sell  a  ton?    Buy  a  ton?    Buy  three 
tons? 

77.  2.    A  farmer  has  thirty  bushels  of  potatoes.     Show 
that  the  lowest  price  at  which  he  will  sell  a  bushel  represents 
the  marginal  utility  of  a  bushel  of  potatoes  to  him. 

78.  3.     Explain  in  terms  of   this   chapter  the   fact  that 
air  is  essential  to  life  and  yet  without  value. 

79.  4.     "I   cannot   now   afford   to   keep   a   servant." — A 


io     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

housewife.  Restate  this  using  the  term  "utility."  This  con- 
dition may  have  been  brought  about  by  a  rise  in  the  wages 
of  servants  or  by  a  reduction  in  the  income  of  the  housewife. 
Is  the  value  principle  the  same  in  either  case? 

80.  5.     (a)  One  is  to  spend  70^  for  a  meal  at  a  cafeteria. 
Discuss  the  conduct  of  this  person  as  he  is  making  his  selec- 
tion, using  the  terms  "utility"  and  "marginal  utility." 

(b)  If  he  has  $3.50  to  begin  with,  discuss  his 
conclusion  to  spend  70^  for  dinner  using  the  terms 
"utility"  and  "marginal  utility." 

81.  6.     Explain  in  terms  of  this  chapter  the  advisability 
of  carefully  apportioning  one's  income  in  advance  of  its  re- 
ceipt.   Is  this  inadvisable  for  any  reason  ? 

82.  7.     "The  cost  of  waging  war  is  the  utilization  of  labor 
services  and  raw  materials."    Is  this  true  ?    At  what  time  are 
these  furnished?    Would  the  cost  of  the  late  war  be  altered 
if  all  the  government  bonds  which  were  issued  should   be 
repudiated  ?    Explain. 

83.  8.     "Bonds   which   were   issued   to   get   money   with 
which  to  construct  the  Panama  Canal  are  still  unpaid."    Argue 
that  this  does  not  mean  that  the  cost  of  building  the  canal 
was  shifted  to  a  later  generation. 

84.  9.     Number  5,  page  149  in  Ely. 

85.  io.     "Those  who  speak  of  diamonds  having  no  use 
value,  and  of  food  having  infinite  use  value,  must  be  drawing 
their  ideas  not  from  the  lives  of  men  but  from  the  life  of 
cattle."    Smart,  Theory  of  Value,  p.  22.    Compare  this  state- 
ment with  the  quotation   from  Adam   Smith  in  problem  6, 
page  149  in  Ely. 


III.    VALUE  AND  PRICE 

A.    VALUE  AND  PRICE 
Ely,  Ch.  X 

86.  i.     Illustrate   the   dependence   of    individual   welfare 
upon  price  relations  by  noting  the  effect  of  possible  changes 
in  certain  prices  upon  farmers,  unskilled  laborers,  professional 
men,  and  employers. 

87.  2.     What  are  the  principal  factors  that  are  tending  to 
make   our   markets   world-wide?     What   forces   operate   to 
check  this  tendency  ? 

88.  3.     "A  man  does  not  spend  a  dollar  for  one  good 
when  he  would  rather  spend  it  for  some  other  good."     Is 
this  similar  to  the  point  made  by  Ely  on  page  157?    Explain. 

89.  4.     If  the  price  of  wood  were  $18  per  cord,  200  cords 
would  be  bought.     If  the  price  were  $12  per  cord,  320  cords 
would  be  purchased,  and  if  the  price  were  $8  a  cord,  440 
cords  would  be  taken.     Construct  a  diagram,  similar  to  the 
one  on  page  158,  to  show  these  facts. 

90.  5.     If  the  number  of  cords  of  wood  that  would  be 
purchased  at  the  prices  indicated  in  the  above  problem  were 
200,  300,  and  400  respectively,  would  there  be  greater  or  less 
elasticity  in  the  demand  for  wood  than  when  the  purchases 
would  be  as  first  indicated. 

91.  6.     Is  the  demand  for  table  salt  more  or  less  elastic 
than  the  demand  for  carrots?     Draw  curves  to  illustrate  the 
demand  for  each. 

ii 


12      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

92.  7.     Explain  the  fact  that  it  may  be  to  the  economic 
advantage  of  cotton  growers  to  destroy  part  of  the  cotton 
crop.    Illustrate  this  point  by  means  of  a  demand  curve. 

93.  8.     If  the  price  of  wood  were  $18  per  cord,  400  cords 
would  be  sold.     If  the  price  were  $12,  320  cords  would  be 
sold;  if  $8,  100  cords  would  be  sold.     Construct  a  diagram 
similar  to  the  one  on  page  163  to  show  these  facts. 

94.  9.     Combine  the  diagram  just  drawn  with  the  diagram 
for  problem  4  above,  into  a  diagram  similar  to  the  one  on  page 
164.     What  sum  of  money  will  be  represented  by  the  area 
APMO? 

95.  10.     If  the  number  of  cords  offered  for  sale  were  400, 
350  and  280  at  the  prices  indicated  in  problem  8,  would  the 
supply  be  more  or  less  elastic  than  if  the  first  set  of  figures 
indicate  the  state  of  the  market?    Draw  a  curve  to  show  this 
supply.    How  does  it  compare  with  the  curve  drawn  in  8  ? 

96.  ii.    Assume    the     following     supply     and     demand 
schedule : 

Supply  Price  Demand 

13,000  $9  1,000 

11,000  8  3,000 

8,000  7  6,000 

7,000  6  7,000 

3,000  5  8,000 

1,000  4  9,000 

o  3  10,000 

a.  What  price  will  be  set?     Why?     Show  that  the 
price  could  not  be  other  than  this  so  long  as  the  conditions 
of  supply  and  demand  are  as  indicated. 

b.  Draw  a  diagram  similar  to  the  one  on  page  164 
to  show  the  facts  indicated  by  this  schedule.    What  sum 
of  money  will  be  represented  by  the  area  APMO? 

c.  If  the  prices  at  which  the  various  increments  of 
supply  will  be  offered   for   sale  represent  the  cost   of 
producing  the  various  increments,  what  area  in  trie  dia- 
gram will  indicate  cost?     Profit? 


VALUE  AND  PRICE  13 

d.  If   the   demand  should   increase  by   one-third   at 
each  figure,  what  price  would  be  set?    A  larger  amount 
would  be  supplied  then,  but  would  the  supply  curve  be 
altered  ? 

e.  If  the  conditions  back  of  supply  should  be  altered 
so  that  8,000  units  were  offered  at  $5,  buyers  would  take 
8,000.    Could  it  properly  be  said  that  the  demand  curve 
had  changed?    Explain. 

97.  12.     "During  the  war  the  demand  for  houses  exceeded 
the  supply."    Explain  this  statement.     Show  that  it  is  mean- 
ingless unless  a  certain  assumption  is  made. 

B.    VALUE  AND  PRICE  (Continued) 
Ely,  Ch.  XI 

98.  I.     Show  just  why  it  is  that  the  price  of  lead  pencils 
tends  to  equal  the  expense  required  to  produce  them.    Under 
what  condition  might  price  be  above  expense  for  a  short  time  ? 
For  a  long  time?    Below  expense  for  a  short  time?    Could 
the  price  of  lead  pencils  be  below  the  expense  of  production 
for  a  long  time?    Could  the  price  received  for  hotel  service 
be  below  the  expense  of  furnishing  such  service  for  a  long 
time?    Explain. 

99.  2.     If  the  price  of  a  particular  product  is  below  ex- 
pense of  production,  why  is  it  not  necessary  for  many  pro- 
ducers to  withdraw  from  this  field  ? 

100.  3.     How  are  the  wages  in  the  skilled  trades  kept  ap- 
proximately equal?     The  earnings  of  professional  men? 

101.  4.     "We  may  expect  the  price  of  meat  to  increase 
steadily."    Why? 

102.  5.     Draw  a  curve  to  represent  an  increasing  expense 
good;  a  decreasing  expense  good;  a  constant  expense  good. 
Draw  demand  curves  upon  these  supply  curves  and  note  the 


14     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

effect  upon  price  in  each  case  if  demand  should  increase,  that 
is,  if  the  demand  curve  should  shift  to  the  right. 

103.  6.     Put  the  facts  that  are  indicated  in  the  diagram 
on  page  176  in  the  form  of  a  supply  schedule  (see  problem 
ii  in  the  set  above). 

104.  7.     "We  can  only  afford  to  pay  twenty  cents  per  unit 
for  the  first  fifteen  units  produced  each  day,  but   we  can 
afford  to  pay  twenty -five  cents  per  unit  for  additional  units." — 
A  manufacturer.    Why  is  this  true? 

105.  8.     What  items  determine  the  fixed  expense  in  the 
operation  of  a  given  number  of  street  cars  each  day?    The 
variable  expense? 

1 06.  9.     "I  was  the  first  manufacturer  in  the  United  States 
to  adopt  the  idea  of  dumping  surplus  goods  upon  the  foreign 
market.     Thirty  years  ago  I  was  not  making  money.     My 
manufacturing  plant  was  not  running  to  its  full  capacity.     I 
couldn't  find  a  market   for   my  products.  .  .  .  My   experts 
figured  that  it  would  increase  our  cost  2%  to  increase  our 
production  25%.    On  this  basis  I  sent  a  man  to  Europe,  who 
sold  lamps  there  at  a  price  less  than  the  cost  of  production 
in  Europe." — Thomas  A.  Edison,  quoted  in  the  Wall  Street 
Journal,  December  20,  1911.    Explain  the  difference  between 
the  increase  in  cost  and  the  increase  in  output.    Argue  that  it 
was  to  the  advantage  of  American  consumers  to  have  Edison 
sell  lamps  abroad  at  a  price  below  the  price  charged  in  America 
for  similar  lamps. 

107.  10.     Argue  that  it  is  to  the  advantage  of  householders 
that  electric  light  plants  should  furnish  current  to  industrial 
plants  at  a  rate  below  that  charged  to  householders. 

1 08.  II.     Name  two  goods  that  differ  greatly  in  the  degree 
to  which  the  expense  of  their  production  is  a  fixed  rather 
than  a  variable  expense.     In  the  case  of  which  of  these  will 
the  selling  price  more  nearly  correspond  at  all  times  to  the 
total  expense  of  production?    Why? 


VALUE  AND  PRICE  15 

109.  12.  a.  What  is  the  normal  price  of  cotton  fiber  and 
cotton  seed? 

b.  If  the  price  of  cotton  seed  oil  should  rise,  what 
would  tend  to  be  the  effect  upon  the  price  of  cotton 
fiber?     Why? 

c.  If  the  cost  of  raising  cotton  should  increase  what 
would  determine  the  relative  effect  of  this  upon  the  price 
of  cotton  fiber  and  cotton  seed?    Explain. 

no.  13.  Should  one  say  that  two  books  published  by 
one  company  are  produced  at  joint  expense?  That  the  lamps 
sold  by  Edison  in  Europe  and  those  which  he  sells  here  are 
produced  at  joint  expense? 

in.  14.  What  would  tend  to  be  the  effect  upon  the  price 
of  beef  of  a  customs  duty  on  the  import  of  hides  high  enough 
to  discourage  their  importation?  Explain. 

112.  15.     One  hundred  ladies'  suits  which  are  now  out  of 
style  remain  unsold. 

a.  What  will  determine  their  price  if  the  stock  is 
divided  among  competing  merchants? 

b.  Will  the  cost  that  was  incurred  in  producing  them, 
or  the  cost  that  would  be  incurred  in  producing  others 
like  them,  determine  the  price?     Will  it  influence  the 
price  ?     Explain. 

113.  16.     There  are  a  fixed  number  of  building  sites  within 
a  mile  of  the  University  campus.    What  determines  the  vari- 
ous rental  prices  that  are  placed  upon  these  sites  ?    Is  the  cost 
of  producing  them  an  item?    If  an  additional  tax  should  be 
levied  upon  these  lots  would   the  rental   prices   be  altered 
thereby  ?     Explain. 


16     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

C.    MONOPOLY  PRICE 
Ely,  pp.  189-190;  201-207 

114,.  i.     "The   power   of   the   monopolist   resides   in   his 
power  to  limit  supply."     Is  this  sound?     Discuss. 

115.  2.     What  are  the  objections  to  monopoly?     Specify 
carefully. 

116.  3.     (a)  Draw  a  supply  and  a  demand  curve  using  the 
data  in  the  table  at  the  top  of  page  202. 

(b)  What   would   be  the   price   under   competition? 
Under  monopoly? 

(c)  Draw  area  (i)  on  your  diagram  to  show  mon- 
opoly profit. 

(d)  Draw  a  supply  curve  (2)  on  your  diagram  to  indi- 
cate conditions   after  a   tax  of   one   cent   per  unit  is 
imposed.    Draw  area  (3)  to  show  monopoly  profit  after 
this  tax  is  imposed.    What  will  the  price  be  then  ? 

(e)  Draw  areas  upon  your  diagram  to  show  that  a 
fixed  tax  upon  the  monopoly  will  not  lead  to  a  change 
in  price. 

(f)  What  would  be  the  effect  upon  the  original  mo- 
nopoly price  if  a  tax  of  20%  were  levied  upon  the  mo- 
nopoly profits?    Explain  by  reference  to  your  diagram. 

117.  4.     Draw  a  supply  curve  and  upon  it  draw  two  de- 
mand curves  (i)  and  (2)  making  (2)  represent  a  demand 
much  less  elastic  than  (i).     Draw  areas  to  show  monopoly 
profits  if  demand  is  as  indicated  by  (i) ;  by  (2). 

1 1 8.  5.     Do   you    agree    with    Ely   that   the   class   prices 
charged  by  the  American  railroads  is  an  example  of  monopoly 
prices?    Would  this  practice  prevail  among  competing  roads? 
Does  it  differ  essentially  from  the  practice  of  certain  hotels 
in  charging   different   prices    for    food   in   different   dining 


VALUE  AND  PRICE  17 

rooms?     From  the  practice  of   furniture  firms  in  charging 
different  prices  for  different  styles  or  kinds  of  furniture? 

119.  6.     Do  a  surgeon's  charges  illustrate  the  class  price 
principle?    A  book  publisher's  prices? 

D.    VALUE 
Clay,  Ch.  XIV 

120.  I.     Why  does  Clay  discuss  "the  problem  of  value" 
rather  than  the  problem  of  price? 

121.  2.     In  what  kind  of  a  society  should  you  expect  all 
economic  goods  to  exchange  for  each  other  in  proportion  to 
their  labor  cost? 

122.  3.     Why  has  the  argument  of  the  exponents  of  the 
labor  theory  of  value  necessarily  become  a  circle  ? 

123.  4.     How  have  the  advocates  of  the  cost  of  produc- 
tion theory  of  value  measured  cost?    By  taking  cost  of  pro- 
duction to  the  most  efficient  producer,  the  least  efficient  pro- 
ducer, or  the  producer  of  average  efficiency?    Discuss. 

124.  5.     Argue  in  support  of  the  proposition  that  an  in- 
crease in  cost  of  production  influences  price  through  decreas- 
ing supply  as  compared  with  what  it  was  or  would  otherwise 
have  been. 

125.  6.     If  the  cost  of  manufacturing  a  certain  grade  of 
cotton  cloth  is  increased  by  the  imposition  of  a  tax  of  two 
cents  per  yard,  will  price  tend  to  rise  ?     Explain. 

126.  7.     If  the  most  efficient  manufacturers  of  cotton  cloth 
are  making  25%  upon  their  investment,  and  the  least  efficient 
or  marginal   producers  are  making  7%,   will   the   price  of 
cotton  cloth  tend  to  rise  if  the  government,  through  taxation, 
confiscates  all  profit  above  20%  ?     Explain. 

127.  8.     "The  excess  profits  tax  law  was  enacted  in  Oc- 
tober, 1917.    When  did  the  marked  rise  in  prices  begin?    The 
tax  was  greatly  reduced  in  1919,  yet  prices  went  on  increas- 


i8      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

ing  until  they  stood  at  238  in  December  as  compared  with 
prices  at  100,  in  1913,  and  at  266  in  April,  1920.  They  began 
falling  in  the  summer  of  1920  without  any  further  change 
having  been  made  in  the  excess  profits  tax.  Facts  thus  bear 
out  the  abstract  reasoning  of  the  economists."  Develop  the 
argument  that  excess  profits  taxation  will  not  increase  prices. 

128.  9.     What   is   the   circle    in   the    cost   of    production 
theory?    How  does  Clay  break  it? 

129.  10.     What  are  the  real  costs  of  building  a  house? 

E.     VALUE  (Continued) 
Clay,  Ch.  XV 

130.  I.     Which  is  of  the  more  importance  in  the  construc- 
tion of  a  house,  rough  boulders  for  the  foundation  or  a  name 
plate  for  the  door?     Account  for  the  relative  prices  of  a 
boulder  and  a  name  plate? 

131.  2.     Why  does  the  labor  service  of  a  coal  miner  sell 
for  so  much  less  than  the  labor  service  of  a  mining  engineer? 

132.  3.    The  price  of  oranges  is  five  cents  apiece. 

a.  Show  how  marginal  utility  of  oranges  comes  to  be 
five  cents  to  all  users. 

b.  Show  how  the  actions  of  buyers  may  make  the 
price  and  the  marginal  utility  of  oranges  ten  cents ;  four 
cents.     Will  the  marginal  cost  of  oranges  change  ac- 
cordingly ?     Explain. 

c.  Show  how  the  actions  of  sellers  may  bring  about 
similar  changes  in  price  and  marginal  utility. 

F.     SPECULATION  AND  PRICE 
Clay,  Ch.  IV 

133.  i.     Assume  that  the  price  of  wheat  is  $1.50  in  No- 
vember and  that  it  will  be  $2.00  in  January  if  speculators 
remain  out  of  the  market.    Draw  a  supply  and  demand  curve 
to  show  the  first  price ;  one  to  show  the  second  price.     Draw 


VALUE  AND  PRICE  19 

additional  curves  to  show  how  speculative  dealing  will  raise 
the  price  in  November  and  lower  the  price  in  January. 

134.  2.     What  are  the  characteristics  of  the  speculator  who 
is  a  public  benefactor?    Of  one  who  is  not? 

135.  3.     A  miller  buys  10,000  bushels  of  wheat  at  $1.00  in 
October  to  grind  into  flour,  expecting  to  market  the  flour  in 
December.    The  cost  of  carrying  the  wheat  during  this  milling 
period  is  three  cents  per  bushel. 

a.  What  risk  does  the  miller  run  if  he  is  unable  to 
sell  his  flour  in  advance  ?    How  will  the  speculative  wheat 
market  enable  him  to  escape  this  risk? 

b.  We  should  expect  the  October  price  of  December 
wheat  to  be  $1.03.     Why? 

c.  If  the  miller  sells  short  10,000  bushels  of  wheat 
at  $1.03  for  December  delivery  will  he  gain  or  lose  on 
this  "future"  transaction  if  wheat  is  $1.08  in  December? 
How  much? 

d.  Will  he  gain  or  lose  on  his  flour  if  the  price  of 
wheat  is  $1.08  in  December?    How  much,  assuming  that 
the  price  of  flour  follows  the  price  of  wheat  closely? 

e.  Argue  that  speculation  as  illustrated  here  tends 
to  lower  the  price  of  flour. 

136.  4.     It  has  been  said  that  the  chief  functions  of  specu- 
lation are:  (i)  to  establish  proper  price;  (2)  to  secure  the 
bearing  of  the  risk  burden  in  the  easiest  and  cheapest  way. 
Show  how  each  of  these  ends  is  secured. — T. 

137.  5.     Does   stock   exchange   speculation   in   automobile 
stocks  tend  in  any  way  to  lower  the  prices  of  automobiles? 
Explain. 

138.  6.     A  man  buys  a  parcel  of  land  for  $11,000.     He 
sells  it  the  following  year  for  $30,000.  Is  it  socially  justifiable 
that  this  man  should  make  this  gain  on  this  transaction  ?    Was 
his  action  a  service?    Discuss. 

139.  7-     Why  is  gambling  socially  pernicious? 


IV.    THE  ORGANIZATION  OF  BUSINESS 
ENTERPRISE 

A.    CAPITAL  AND  ITS  ORGANIZATION 
Clay,  Ch.  V 

140.  i.    According  to  Clay's  definition  are  the  following 
capital:  a  factory  building,  the  land  on  which  it  is  built,  an 
auto  truck,  a  pleasure  car,  a  dwelling  house,  a  lawn,  house- 
hold  furniture?     Which  of   these  does  the  usual  business 
man  designate  as  capital  ? 

141.  2.     How   could   you   assist   in   the   accumulation   of 
capital?     How  could  our  society  further  encourage  the  ac- 
cumulation of  capital? 

142.  3.     X  and  Y  form  a  corporation  putting  in  $5,000 
each.    The  business  fails  with  assets  of  $6,000  and  debts  of 
$13,000.    How  much  do  X  and  Y  lose?    The  creditors?    Is 
it  right  that  the  creditors  should  lose  so  much,  especially  if 
X  and  Y  are  rich  and  the  creditors  are  poor?    Discuss. 

143.  4.     Is  preferred   stock  more  like  common   stock   or 
bonds  ?    Explain. 

144.  5.     What   service   is   rendered   by   a   stock   broker? 
Explain. 

B.    BUSINESS  ORGANIZATION  :  THE  CORPORATION 
Ely,  pp.  212-230 

145.  i.    "The  assets  side  of  a  balance  sheet  shows  the 
actual  wealth  that  is  owned  or  controlled  by  the  business  unit. 

20 


ORGANIZATION  OF  BUSINESS  ENTERPRISE       21 

The  liability  side  of  a  balance  sheet  shows  the  ultimate  owner- 
ship of  the  assets."  Is  this  statement  in  accord  with  Ely's 
statement  ?  Explain. 

146.  2.     Why  are  the  two  sides  of  a  balance  sheet  always 
exactly  equal?    Could  they  be  different?    Explain. 

147.  3.     How  would  the  balance  sheet  on  page  213  be 
altered : 

a.  If  a  fire  should  destroy  $20,000  worth  of  unin- 
sured goods  ? 

b.  If  $10,000  of  accounts  receivable  should  prove  to 
be  worthless. 

c.  If  this  concern  should  reduce  "profits"  by  $20,000 
and    increase    "capital"    by   $20,000,    would   this    mean 
over-capitalization?     Explain.     Would  the   stockholders 
receive  an  "income"  as  a  result  of  this  change  ? 

d.  If  this  concern  should  make  $17,000  how  would 
the  balance  sheet  be  affected  ? 

e.  Suggest  a  change  in  the  balance  sheet  that  would 
show  over-capitalization. 

148.  4.     The    X    Y    Street    Railway    Company    invested 
$500,000.     The  yearly  net  income  was  $80,000.     The  com- 
pany   then    increased    the    capital    stock    from    $500,000    to 
$1,000,000.     Was  this  a  case  of  over-capitalization?     Why 
should    the    company    wish    to    thus    increase    its    capital 
stock  ? 

149.  5.     "Rates  must  be  increased,  as  we  must  earn  7% 
upon  our  capital."     "Yes,  but  a  large  part  of  that  capital  is 
'water.'  r     Explain  what  is  meant. 

150.  6.     "This   brick   manufacturing   company    is   greatly 
over-capitalized,  and  as  a  result  we  must  pay  more  than  we 
should  for  brick."    Explain  the  reasoning  by  which  this  con- 
clusion was  reached.    Is  it  sound  ?    Explain. 


22      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

C.  COMPETITION  AND  ASSOCIATION 

Clay,  Ch.  VI 

151.  i.     Explain  the  competition  between  the  manufacture 
of  paper-weights  and  the  manufacture  of  ear  rings? 

152.  2.     Is    competition    wicked?      Is    there    competition 
among  the  members  of  a  football  squad?    The  members  of  a 
missionary  society?     Can  you  think  of  a  social  organization 
in  which  there  would  not  be  any  competition? 

153.  3.     "Employers'  association  are   for  the  purpose  of 
restricting  competition  in  the  purchase  of  labor ;  trade  unions 
are  for  the  purpose  of  restricting  the  sale  of  labor."     Are 
either  of  these  purposes  justifiable?     Discuss. 

154.  4.     The  opposite  of  "competitive"  in  the  phrase  "com- 
petitive system"  is  "bureaucratic."     Explain. 

D.  MONOPOLY  AND  COMBINATION 

Clay,  Ch.  VII 

155.  i.     Contrast  the  railroad  industry   and  the  clothing 
manufacturing  industry  in  respect  to  the  tendency  toward 
monopoly. 

156.  2.     Why  does  the  absence  of  competition  make  gov- 
ernment regulation  or  ownership  necessary? 

X57«  3-     Is  the  point  made  at  the  bottom  of  page  132  and 
the  top  of  page  133  sound?    Discuss. 

158.  4.     "The  success  of  government  enterprise   depends 
upon  the  character  of  the  citizens."    Do  you  agree?    Discuss. 

E.     MONOPOLY  AND  COMPETITION    (Continued) 
Clay,  Ch.  VIII 

159.  i.     Of  the  goods  and  services  of  goods  that  you  pur- 
chase how  many  are  monopolized?    Account  for  the  monop- 


ORGANIZATION  OF  BUSINESS  ENTERPRISE       23 

olization  of  the  ones  that  are  monopolized;  for  the  lack  of 
monopolization  of  the  others. 

1 60.  2.     List  the  social  advantages  of  monopolistic  com- 
binations ;  the  social  disadvantages. 


F.     MONOPOLY 
Ely,  pp.  190-200;  20^-210 

161.  i.     Is  there  a  place  in  the  classification  on  page  195 
for   monopolies  due  solely  to  capitalistic  control,  as  in  the 
case,  say,  of  a  monopoly  of  the  cracker  industry? 

162.  2.     Number  6,  page  210  in  Ely. 

163.  3.     What  are  the  objections  to  monopoly   from  the 
point  of  view  of  consumers?     Of  possible  producers?     Does 
the  effective  regulation  of  a  monopoly  by  the  government  pro- 
tect  the   interests   of   consumers?     Of   possible   producers? 
Discuss. 

G.    TRUSTS  AND  COMBINATIONS 
Ely,  pp.  230-247 

164.  I.     Explain  the  difference  from  the  point  of  view  of 
"restraint  of  trade"  between  a  "trust"  (a  trusteeship)  and  a 
holding  company. 

165.  2.     "It  is  one  of  the  significant  facts  of  modern  busi- 
ness that  a  financier  can  control  more  industries  than  he  could 
possibly  buy.     With  a  fortune  of  $160,000,000  he  may  be 
able  to  control  plants  that  could  not  be  purchased  for  less 
than  $500,000,000."     Show  how  this  is  possible. 

166.  3.     Suggest  some  of  the  problems  that  would  arise  if 
we  were  to  allow,  or  encourage,  the  monopolization  of  sugar, 
oil,  and  tobacco  and  then  subject  the  monopolies  to  government 
control. 


V.     MONEY  AND  BANKING 

A.  MONEY 
Clay,  Ch.  IX 

167.  I.     Why  is  gold  well  suited  to  serve  as  money?     In 
what  way,  if  any,  are  each  of   the   following  commodities 
inferior  to  gold  as  a  monetary  medium:  wheat,  cotton,  dia- 
monds, iron,  copper,  silver? 

168.  2.     What  is  a  dollar?     A  sovereign? 

169.  3.     How  is  the  price  of  gold  determined? 

170.  4.     What  would  tend  to  happen  if  our  one-cent  coins 
were  made  legal  tender  in  unlimited  amounts  and  were  freely 
coined  ?    Why  ? 

171.  5.     If  under  a  bimetallic  system  the  relative  weights 
of  a  silver  dollar  and  a  gold  dollar  are  as  sixteen  to  one  (16:1) 
while  the  relative  values  are  as  fifteen  is  to  one  (15  :i),  which 
metal  will  be  overrated  ?    Which  coin  will  be  used  in  debt  pay- 
ments?   Why?    Which  one  will  become  the  actual  monetary 
standard?     Why?     Answer  similar  questions  if  the  relative 
values  were  as  17:1. 

172.  6.     What    is    the    inherent    defect    of    bimetallism? 
Would  international  bimetallism  tend  to  correct  this  ?    Explain. 

173.  7.     Why  doesn't  silver  drive  out  gold  in  our  country 
today? 

B.  MONEY 
Ely,  Ch.  XIV 

174.  I.     "Free     (unrestricted)     coinage    and    unrestricted 
melting  keep  23.22  grains  of  pure  gold  worth  $i."    Explain. 

24 


MONEY  AND  BANKING  25 

Are  both  free  coinage  and  unrestricted  melting  necessary  to 
maintain  the  parity  of  the  standard  money? 

175.  2.     Under  what  conditions  would  an  American  gold 
dollar  of  present  weight  and  fineness  be  equal  in  value  to  26 
grains  of  pure  bullion?    Explain.    If  these  values  were  made 
equal  what  circumstances  other  than  government  activity  might 
make  them  unequal?    Explain. 

176.  3.     (a)    What    social    benefit    do    the    advocates    of 
bimetallism  expect  from  an  adoption  of  their  system?     Ex- 
plain the  process  by  which  this  benefit  would  be  derived. 

(b)  Assume  that  the  present  market  ratio  of  silver  to 
gold  were  20:1  and  that  the  government  adopts  bimetal- 
lism at  the  ratio  of   19:1.     How  could  you  make  this 
situation  a  source  of  profit  to  yourself?    Explain  clearly 
the  course  of  action  you  would  pursue  in  making  this 
profit  ? 

(c)  Supposing  that  a  large  number  of  people  were  to 
adopt  this  opportunity  for  profit,  what  effect  would  their 
united  action  have  upon  (i)  the  production  of  gold  and 
the  use  of  gold  in  the  arts?    Explain.     (2)  The  level  of 
prices?    Explain. 

177.  4.     In  the  spring  of  1920  a  bill,  known  as  the  Mc- 
Fadden  Bill,  was  introduced  in  Congress  at  the  instigation  of 
the  American  Mining  Congress.     It  provided  that  a  tax  of 
fifty  cents  a  pennyweight  should  be  levied  upon  all  gold  used 
in  industry,  and  that  the  proceeds  should  be  used  to  pay  to  the 
producers  of  gold  bullion  a  bonus  of  $10  per  ounce  on  all  gold 
produced  up  to  1925.     If  this  bill  had  become  a  law  would 
our  monetary  standard  have  been  altered  thereby?  Discuss. 

178.  5.     Note  some  of  the  probable  consequences  if  our 
government  had  sought  to  finance  the  late  war  by  issuing  paper 
money. 


26     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

179.  6.     What  is  the  basis  for  the  estimate  that  "the  use  of 
greenbacks  increased  the  expense  of  the  civil  war  by  nearly 
$600,000,000"? 

C.     BANKING  AND  CREDIT 
Clay,  Ch.  X 

1 80.  I.     "Credit  economizes  the  use  of  money."     Explain 
what  is  meant. 

181.  2.     a.     Just  how  can  a  bank  that  has  $10,000  in  cash 
loan  $80,000? 

b.  Why  is  it  safe  to  do  this  ? 

c.  Under  what  conditions  could  it  loan  a  still  larger 
amount   on   a   reserve  of   $10,000?     Under   what   con- 
ditions could  it  safely  loan  without  any  reserve? 

d.  Should  the  amount  which  may  be  loaned  in  this 
way  be  specified  by  law? 

e.  If  the  bank  holds  a  large  quantity  of  high-grade 
bonds,  may  it  more  safely  keep  a  small  reserve  than  if  it 
has,  instead,  invested  a  similar  amount  in  farm  mort- 
gages ?     Explain  ? 

182.  3.     What  is  a  check?     Why  do  most  persons  prefer 
to  use  checks  in  exchange  transactions  ?    Why  is  it  important 
socially  that  checks  be  used  ? 

183.  4.     a.     Write  out  the  substance  of  the  bill  drawn  by 
the  American  wheat  exporter  which  is  referred  to  on  page  175. 
Trace  the  course  of  this  bill. 

b.     Do  the  same  for  the  bill  purchased  by  the  Ameri- 
can cloth  importer. 

184.  5.     Explain  the  steps  by  which  bank  A  manufactures 
$7,000  credit  for  Mr.  Z. 

185.  6.     "Bank  deposits  are  not  usually  created  by  the  de- 
posit of  money."    Discuss. 


MONEY  AND  BANKING  27 

1 86.  7.     What  similarity,  if  any,  is  there  between  a  bank's 
reserve  and  a  merchant's  till  money?    Explain. 

187.  8.     "Commercial  banking  stands  or  falls,   as  to  its 
social  utility,  with  the  merits  or  demerits  of  the  business  man's 
doings." — Taussig.     Explain. 

188.  9.     a.     "The  credit  system  enables  one  to  secure  an 
amount  of  purchasing  power  closely  equivalent  to  the  amount 
of  wealth  he  possesses."     Explain.     Could  one  as  well  add, 
"or  expects  to  possess?"    Explain. 

b.  "Credit  is  the  machinery  by  which  all  forms  of 
wealth  may  be  coined  into  dollars."  Explain  and 
illustrate. 

D.     CREDIT  AND  BANKING 
Ely,  Ch.  XV 

189.  i.     The  five  banks   of  a  small   city  brought  to  the 
clearing  house  one  day  the  following  claims : 


No.  i  against               No. 
No.  2,    $2,213.19          No.  i, 
No.  3,      1,865.09          No.  3, 
No.  4,      2,415.96          No.  4, 
No.  5,        512.21          No.  5, 

2  against 
$  4,2&478 
2,172.45 
3,043.i8 
655.87 

No.  3  against 
No.  i,    $4,974-66 
No.  2,      1,607.79 
No.  4,      1,093.24 
No.  5,        625.88 

Total,    $7,006.45           Total, 

No.  4  against 
No.  i,    $  3,078.73 
No.  2,        1,793.16 
No.  3,           973.73 
No.  5,        4,633-96 

$10,156.28 

No 
No. 
No. 
No. 
No. 

Total,    $8,301.57 

.  5  against 
i,    $   332.15 
2,         377.17 
3,       1,51546 
4,          181.56 

Total,    $10,479.58  Total,    $2,406.34 

a.  Compute  the  balance  for  or  against  each  bank. 

b.  How  much  money  was  needed  at  the  clearing  house 
that  day? 

c.  How  can  you  account  for  the  condition  shown  by 
bank  No.  5,  namely,  that  bank  No.  4  cashed  so  many 


28     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

checks  drawn  upon  this  bank,  while  the  other  banks 
cashed  so  few,  and  that  it  cashed  but  few  for  any  of  the 
Other  banks?  From  this  showing,  is  bank  No.  5  neces- 
sarily the  smallest  of  the  five  banks? 

d.  Show  concretely  the  saving  that  results  from  the 
clearing  house  in  this  town  of  five  banks. 

e.  Is  the  amount  of  bank  clearings  a  fair  index  of 
the  prosperity  of  a  community?    Explain. — T. 

190.  2.     a.     How  will  the  bank  statement  on  page  288  be 
affected  if  X  deposits  $2,000  in  gold? 

b.  If  Y  cashes  a  $500  check  drawn  by  X? 

c.  If  Z  opens  an  account  by  depositing  a  $100  check 
written  by  X? 

d.  If  Z,  wishing  to  borrow,  gives  his  note  for  $300  to 
the  bank  and  has  this  amount,  less  $2.45  interest,  credited 
to  his  deposit  account? 

e.  If  the  bank  spends  $1,000  for  bonds? 

f.  If  the  bonds  are  later  sold  for  $1,100? 

g.  If  Z  pays  his  note  at  maturity? 

191.  3.     A  customer  gives  his  note  and  opens  a  checking 
account. 

a.  Show  that  if  the  bank  should,  instead  of  giving  him 
a  checking  account,  issue  him  due  bills  upon  it   (bank 
notes),  the  banking  principle  involved  would  be  similar 
to  that  involved  in  establishing  a  checking  account. 

b.  In  what  way  would  the  bank's  notes  be  superior 
to  checks  as  media  of  exchange? 

c.  What  element  of  danger  is  involved  in  allowing 
banks  to  issue  their  own  notes? 

d.  Should  we  impose  reserve  requirements  in  regard 
to  notes  ?    Why  ? 


MONEY  AND  BANKING  29 

192.  4.  Show  that  the  right  to  issue  bank  notes  on  the 
general  assets  of  the  bank  would  make  the  bank  currency 
elastic. 

IQ3-  5-  Was  the  improvised  currency  that  was  issued  dur- 
ing the  panic  of  1907  at  all  similar  to  bank  checks?  Why 
was  it  necessary  to  resort  to  this  improvised  currency  ?  What 
was  the  Aldrich-Vreeland  Act  expected  to  accomplish? 

194.  6.     The  United  States  government  abandoned  the  In- 
dependent Treasury  system  in  the  fall  of  1920.     It  now  de- 
posits its  receipts  of  money  in  banks  and  checks  on  the  same 
in  payment  of  obligations.    Suggest  the  advantages  of  the  new 
method  as  compared  with  the  former  method. 

195.  7.     What  is  the  significance  of  the  provision  allowing 
the  Federal  Reserve  Board  to  suspend  the  40%  reserve  re- 
quirement for  federal  reserve  notes  and  at  the  same  time  im- 
pose a  tax  upon  the  deficiency  in  the  reserve  ? 

196.  8.     Describe  and  illustrate  the  process  by  which  (i)  a 
commercial  transaction  in  Columbus  gives  rise  to  3O-day  com- 
mercial paper;  (2)  this  paper  comes  into  the  possession  of  a 
local  national  bank;  (3)  this  bank  rediscounts  the  paper  at 
the  Cleveland  federal  reserve  bank;   (4)  the  federal  reserve 
bank  sends  federal  reserve  notes  to  the  Columbus  bank  in 
payment;  (5)  the  paper  is  taken  up  (paid)  when  due.     How, 
if  at  all,  will  such  payment  affect  the  federal  reserve  bank  if 
the  federal  reserve  notes  issued  against  the  paper  are  out- 
standing at  the  time  the  paper  is  taken  up  ?     Explain. 

E.     THE  LEVEL  OF  PRICES 
Clay,  pp.  195-203 

197.  i.     Note  the  effect  of  the  rising  price  level  from  1915 
to  1920  on  property  owners,  owners  of  bonds  and  mortgages, 
employers,  wage  earners;  the  effect  of   falling  prices  since 
May,  1920. 


30     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

198.  2.    a.     What  local   price   change   followed   the   dis- 
covery of  gold  in  the  Klondike?    Why? 

b.     Trace  the  extension  of  the  influence  of  this  ad- 
dition to  the  gold  supply. 

199.  3.     If  the  annual  production  of  goods  should  increase 
by  25  per  cent,  what  effect  would  this  tend  to  have  on  the 
price  level  if  the  amount  of  money  and  the  frequency  of  its 
exchange  should  remain  the  same? 

200.  4.     How  does  the  extension  of  specialization  tend  to 
affect  the  price  level?     The  extension  of  monopoly  control? 
The  reduction  in  the  ratio  of  bank  reserves  to  bank  credit? 
Explain. 

F.     OTHER  PROBLEMS  IN  MONEY  AND  BANKING 
Ely,  Ch.  XVI 

201.  I.     Professor  Irving  Fisher  gives  the  following  data 
for  the  equation  of  exchange  for  1918  (American  Economic 
Review,  June,  1919,  p.  407)  : 

M  (money  in  actual  circulation)     2.46  billion  dollars 

V      30 

M'    12.5    billion  dollars 

V 

The  value  of  goods  and  services  purchased — 1269  billion. 

Find  Professor  Fisher's  figure  for  V  which  is  omitted  here. 

202.  2.     If  the  amount  of  M  should  be  doubled  what  effect, 
if  any,  would  this  tend  to  have  on  M'?    V?    V?    T?    P? 
Explain. 

203.  3.     Trace  the  influence  of  $20,000,000  of  gold  that  is 
imported  from  abroad. 

204.  4.     Argue  that  one  should  expect  purchases  of  articles 
made  of  gold  to  have  increased  during  the  past   few  years 
relative  to  the  purchases  of  silver  articles,  silks,  and  satins. 


MONEY  AND  BANKING  31 

205.  5.    The  report  of  the  Yukon  Gold  Company  for  1919 
says:    "The  adverse  conditions  affecting  gold  mining  gener- 
ally, referred  to  in  the  last  two  annual  reports,  still  obtain, 
and  the  production  from  many  low-grade  mines  has  ceased 
entirely."    What  were  the  adverse  conditions? 

206.  6.     F.  W.  Parsons  in  the  Saturday  Evening  Post  for 
April  3,  1920,  says:    "In  1915  the  total  output  of  gold  from 
all  the  mines  of  the  world  reached  a  maximum  production  of 
$469,000,000.    By  1918  the  gold  output  had  declined  to  $381,- 
000,000, — while  in  1919  the  best  estimate  places  the  gold  pro- 
duction of  the  world  at  only  $350,000,000."    Explain  the  in- 
fluence of  the  high  price  level  upon  this  decline  in  the  produc- 
tion of  gold  and  the  effect  of  the  decline  in  gold  production 
upon  the  price  level. 

207.  7.     Fill  in  the  blanks  in  the  following: 

An  increase  in  the  production  of  gold  tends  to 

prices.    This  tends  to the  amount  of  gold 

used  in  the  arts  and  to the  amount  of  gold 

produced,  thus  tending  to the  price  level. 

208.  8.     List  the  advantages  and  disadvantages  of  the  rise 
in  the  price  level  from  1915  to  the  summer  of   1920.     Do 
likewise  for  the  decline  in  prices  that  is  now  (1921)  taking 
place. 

209.  9.     Illustrate  the  effect  of  a  rise  in  the  price  level 
upon  creditors;  upon  debtors.     The  effect  of  a  fall  in  the 
price  level  upon  creditors;  upon   debtors. 

210.  10.     Are  the  points  under  Crises  applicable  to  the 
present  (1921)  business  depression?    Explain. 

211.  ii.     The    Monthly    Labor    Review,    October,    1920, 
page  41,  gives  data  of  food  prices  in  Columbus,  Ohio,  among 
which  are  the  following: 


32      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

Article                            Amount  Price 

Aug.  15, 1919   Aug.  15, 1920 

Sirloin  steak pound  39-3#  43-3^ 

Butter    pound  61.6  65.4 

Eggs,  strictly  fresh dozen  48.3  54.3 

Bread    pound  10.2  1 1.9 

Potatoes    pound                 5.4  5.1 

Cabbage    pound                 6.4  3.5 

Sugar,  granulated   pound  10.9  22.5 

a.  On  the  basis  of  these  few  items  find  the  index 
number   of   prices    for  August   15,    1920,   as   compared 
with  the  prices  for  August  15,  1919,  if  each  of  these 
articles  is  given  equal  weight. 

b.  Find  the  index  number  if  these  articles  are  as- 
sumed to  represent   proportionate  parts   of   a    family's 
expenditures  for  food  as  follows:  sirloin  steak  5,  butter 
IO»  eggs  8,  bread  10,  potatoes  1.5,  cabbage  .5,  sugar  4, 
and  are  weighted  accordingly. 

212.  12.     The  Monthly  Labor  Review,  October,  1920,  page 
65,  gives  the  following  data  as  to  the  change  in  the  cost  of 
living  from  1913  to  June,  1920: 

Per  cent  of 

Per  cent  of  increase  from  1913 

total  expenditures  to  June,  1920 

Food    38.2  119. 

Clothing     16.6  187.5 

Housing   13.4  34.9 

Fuel  and  light  5-3  71.9 

Furniture   and    furnishings 5.1  192.7 

Miscellaneous     21.3  101.4 

IOO.O 

Find  the  total  per  cent  of  increase  weighting  each  item 
according  to  its  importance  in  the  family  budget. 

213.  13.     In  determining  changes  in  the  cost  of  living,  the 
United  States  Bureau  of  Labor  Statistics  weights  the  various 
articles  of  food  according  to  their  importance  in  the  food 
budget   but    calculates   the   index   number    for   clothing   by 
giving  all  of  the  articles  equal  weight.     Suggest  an  explana- 
tion for  this  practice. 


MONEY  AND  BANKING  33 

G.     UNEMPLOYMENT  AND  OVERPRODUCTION 
Clay,  Ch.  XIII 

214.  i.     Do  we  ever  have  unemployment  because  of  gen- 
eral overproduction,  or  because  of  overproduction  in  certain 
industries  ?    Discuss. 

215.  2.     Illustrate  the  various  points  in  this  chapter  by 
reference  to  our  experience  during  the  present  industrial  de- 
pression (1921). 


VI.     FOREIGN  EXCHANGE  AND  INTER- 
NATIONAL TRADE 

A.     INTERNATIONAL  TRADE 
Clay,  pp.  204-213 

216.  I.     In  country  X,  wheat  can  be  produced  at  a  cost  of 
one  day's  labor  per  bushel  and  knives  at  a  cost  of  two  days' 
labor  per  dozen.    In  country  Y,  the  costs  are  respectively  two 
and  three  days'  labor.    Prove  in  detail  that  exchange  between 
X  and  Y  will  be  advantageous  to  both.    What  law  does  this 
illustrate  ? 

217.  2.     Argue  that  it  would  be  impossible  for  a  country 
to  be  entirely  deprived  of  its  gold. 

218.  3.     What  is  the  fundamental  reason  for  the  rate  of 
exchange  between  two  gold   standard  countries  ever  being 
other  than  par?    If  the  Atlantic  Ocean  were  a  narrow  river, 
would  the  rate  of  exchange  on  London  normally  vary  more, 
or  less,  from  par  than  it  does  now?    Explain. 

219.  4.    What  trade  conditions  tend  to  bring  about  a  low 
rate  of  exchange  on  London?    Why  is  it  that  this  rate  will 
not  normally  be  less  than  $4.83?     Why  has  the  rate  been 
less  than  this  since  1915?    Does  a  low  rate  of  exchange  on 
London  tend  to  stimulate  our  exports  or  imports  ?    Explain. 

220.  5.     "Movements  of  gold  as  a  result  of  a  high  or  low 
rate  of  exchange  tend  to  be  self-corrective."    Explain. 

34 


FOREIGN  EXCHANGE  AND  TRADE  35 

B.    INTERNATIONAL  TRADE 
Ely,  Ch.  XVII 

221.  i.     "We  pay  Brazil  for  our  coffee  by  selling  cotton  to 
Englishmen."    Explain. 

222.  2.     "The  rate  of  exchange  in  New  York  on  London 
is  determined  by  the  supply  of  bills  on  London  and  the  de- 
mand for  bills  on  London/'    Will  the  following  tend  to  raise 
or  lower  the  rate  of  exchange  on  London  in  New  York  ? 

(a)  An  increase  in  exports  of  goods  to  England? 
To  Italy? 

(b)  An  increase  in  the  importation  of  goods  from 
England  ?    From  Brazil  ? 

(c)  European  travel  by  Americans? 

(d)  American  travel  by  Europeans? 

(e)  Borrowing    abroad    by    selling    American    se- 
curities ? 

(f)  Buying  of  postal  money  orders  to  be  sent  to 
Europe  ? 

(g)  An  increase  in  the  discount  rate  in  London? 
In  New  York? 

223.  3.    American  exporters  do  not  sell  their  claims  direct 
to  American  importers,  they  sell  to  middlemen.    Who  are  the 
middlemen?     Does   the  middleman  sell  the  piece  of   paper 
which  he  receives  from  the  exporter  to  the  importer,  or  does 
he  give  him  another  piece  of  paper?    If  the  latter,  what  does 
he  do  with  the  paper  he  buys  from  the  exporter  ? 

224.  4.     Write  out  the  substance  of  the  bill  that  the  ex- 
porter sells  to  the  exchange  broker,  and  the  substance  of  the 
bill  that  the  importer  buys. 

225.  5.     If  the  exchange  broken  has  exhausted  his  London 
balance,  and  is  unable  to  buy  exporters'  claims,  what  must 


36     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

he  do  to  replenish  his  balance  so  that  he  can  sell  drafts  to 
importers?    Then  what  price  must  he  charge  for  his  drafts? 

226.  6.     "A  country  that  produces  gold  tends  to  export 
more  gold  than  it  imports."     Show  how  the  production  of 
gold  leads  to  a  rate  of  exchange  that  makes  it  profitable 
for  bankers  to  ship  gold  abroad. 

227.  7.     The  course  of  exchange  rates  in  New  York  for  a 
few  months  during  the  winter  of  1920-1921  was  as  follows : 


London 
Paris  . 
Spain  . 


Par 
4-8665 

.1930 
.1930 

Nov.  i6-Dec.  15 
High    36300 
Low     34075 
High      .0626 
Low       .0582 
High      .1350 
Low       .1240 

Dec.  16-31 
3.5450 
3.4825 
.0612 
.0580 
.1300 
.1293 

Jan.3-8 

3.6550 
3.5387 
.0601 
.0581 
.1340 
.1310 

Jan.  10-15 
37787 
3.6675 
.0620 
.0506 
.1360 
.1320 

a.  Account  for  the  change  in  London  exchange  from 
November  to  January   15;  Paris  exchange. 

b.  Why  was  exchange  on  London  and  Paris  so  far 
below  par? 

c.  Account  for  the  difference  between  French  and 
Spanish  exchange. 

228.  8.     During    the    fall    of    1920   the    London    Times 
printed  a  table  showing  the  following: 

Increase  or  decrease 

Increase  or  decrease  percent  required  to 

COUNTRY         in  note  circulation  purchase  £i  exchange 

for  year  on  London 

(in£i,ooo's)  Percent 

France    +    112,564  +8  +48 


Italy    -\-   221,248  +45  +IJ3 

Switzerland    . .  —         394  —  i  —    7 

Germany    +1,545,244  +79  +111 

Portugal    +     31,212  +54  +150 

Explain  the  causal  connection  between  the  change  in  notes 
outstanding  and  the  change  in  exchange  rates. 

229.  9.     a.     What  should  you  expect  to  be  the  relation 


FOREIGN  EXCHANGE  AND  TRADE  37 

between  the  goods  exports  and  the  goods  imports  of  a 
country  during  the  following  periods :  ( i )  When  it  is  first 
open  to  settlement  or  to  industrial  enterprise;  (2)  when  it 
has  become  quite  well  supplied  with  imported  capital  goods; 
(3)  when  its  citizens  begin  to  make  investments  in  other 
countries;  and  (4)  when  a  relatively  large  amount  of  such 
foreign  investments  have  been  made? 

b.     In  which  of  these  stages  is  the  United   States? 
England  ?    Mexico  ? 

230.  10.     "A  favorable  trade  balance  is  an  excellent  sign 
of  vigorous  national  life,  and  of  a  sound  economic  structure. 
It  means  that  the  nation  is  taking  in  more  than  it  is  paying 
out." — Strauss,  Investor's  Magazine,  Dec.  i,  1914. 

a.  Do  you  agree  with  the  first  statement  ?• 

b.  Illustrate  this  point  by  comparing  our  "favorable" 
with  England's  "unfavorable"  balance  of  trade. 

c.  State  the  various  things  that  a  favorable  balance 
of  trade  may  mean. 

231.  ii.     "There  can  be  no  national  gain  from  domestic 
trade  for  what  one  person  gains  the  other  loses;  it  is  only 
by  foreign  trade  that  a  nation  can  gain."    Discuss. 

232.  12.     During  the  first  years  of  the  Great  War  many 
persons  rejoiced  over  the  fact  that  we  were  "getting  out  of 
debt  to  Europe." 

a.  How  was  this  being  accomplished? 

b.  Argue  that  this  may  have  been  to  our  disadvantage. 
233«  X3-     What  are  the  advantages  of  having  unrestricted 

(free)  trade  between  the  states  of  our  union?  Do  the  same 
considerations  apply  to  the  case  of  international  trade? 

234.  14.     Name  several  groups  of  persons  in  Ohio  that 
suffer  from  our  interstate  trade.     Would  protection  benefit 
them  ?    Explain. 

235.  15.     Into  what  lines  of  industry  do  the  productive 


38      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

forces  of  a  community  tend  to  go?  Argue  that  the  social 
interest  is  adversely  affected  normally  by  the  giving  of  a 
government  subsidy  to  some  one  kind  of  enterprise. 

236.  1 6.     Show  that  a  protective  tariff  is  tantamount  to  a 
subsidy   paid   to   certain   producers    from  the   proceeds   of 
taxation. 

237.  17.     "If  we  buy  rails  from  England,  we  get  the  rails, 
of  course,  but  they  get  our  money ;  while,  if  we  buy  rails  at 
home,  we  have  the  rails  and  the  money  too." — A  statement 
falsely  credited  to  Lincoln. 

a.  Is  there  any   reason  to   expect  that  our  buying 
rails  in  England  would  carry  off  our  regular  stock  of 
money  ?    Explain. 

b.  Should   we   regret   such   trading  because   it   de- 
creases our  stock  of  money,  if  that  should  result? 

c.  Substitute  "cotton"  for  "money"  throughout  the 
above   quotation,   and   show   the   fallaciousness   of   the 
doctrine. — T. 

238.  18.     "We  spend  thousands  of  dollars  dredging  har- 
bors, laying  cables,  and  building  ships  in  order  that  we  may 
trade   with   foreign    nations   and   then   we   put   up   a   tariff 
barrier  and  stop  the  trade  we  make  possible."    Does  a  tariff 
thus  negative  the  benefits  which  accrue  from  improvements 
in  transportation? 

239.  19.     A  group  of  men  in  the  United  States  argue  in 
support  of  a  merchant  marine  and  of  a  high  protective  tariff. 
Show  that  they  are  inconsistent. 

C.    PROTECTION  AND  FREE  TRADE 
Ely,  Ch.  XVIII 

240.  I.     Explain  how,  if  at  all,  a  protective  tariff  tends  to 
promote  nationalism.     Has  our  protective  tariff  contributed 
to  the  development  of  Americanism?     Would  our  spirit  of 


FOREIGN  EXCHANGE  AND  TRADE  39 

national  unity  be  more  intense  if  we  stopped  the  importation 
of  coffee,  for  example?  Consider  the  case  of  free-trade 
England  in  this  connection. 

241.  2.     "The   infant  industries   tariff  argument  presup- 
poses that  the  tariff  will  be  temporary,  but  experience  shows 
that  such  tariffs  tend  to  be  maintained  after  the  industry  is 
fully  grown."     Account  for  this  tendency. 

242.  3.     Show  that  the  establishment  of  tariffs  sufficient 
to  "equalize  costs  of  production"  at  home  and  abroad  tend 
to  stop  all  foreign  trade. 

243.  4.     Argue  that  it  is  on  the  whole  better  to  pay  a 
bounty  from  the  proceeds  of  taxation  to  producers  whom 
we  wish  to  encourage  than  to  impose  a  tariff. 

/244.  5.     Argue  that  the  income  of  laborers  in  goods  and 
/services  will  be  less  under  a  policy  of  protection  than  under 
free  trade. 

245.  6.     "The  true  way  to  quicken  foreign  demand   (for 
British  goods)  was  to  open  the  ports  to  that  foreign  supply 
with  which  they  paid  us  for  what  they  bought  from  us." — 
Morley's  Gladstone,  Vol.   i,  p.  267.     Show  that  the  above 
is  sound  doctrine. — T. 

246.  7.     The  amount  added  to  price  by  a  tariff  duty  does 
not  represent  a  social  cost  if  the  good  can  be  produced  with- 
out the  tariff;  but  it  does  represent  a  social  cost  if  the  pro- 
tective  duty  is   necessary  to   the  production   of   the  good. 
Show  that  this  is  true.    Then  is  protection  less  objectionable 
when  it  is  not  needed?    What  is  the  objection  to  it  in  such 
a  case? 

247.  8.     "A  reduction  of  $60,000,000  in  tariff  duties  means 
a  reduction  in  the  burden  upon  the  people's  consumption  of 
approximately  $600,000,000." — Senator  Newlands  in  the  In- 
dependent, 73:757.    Explain. 

248.  9.     "To  the  same  extent  that  the  home  market   is 
wrested  from  foreigners  and  given  to  protected  home  pro- 


40      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

ducers,  the  foreign  market  is  wrested  from  unprotected  home 
producers." — Seager,  p.  397.  Show  that  this  is  necessarily 
true.— T. 

249.  10.     "As  a  nation  advances  to  the  industrial  stage  that 
makes  it  an  exporter  of  manufactured  articles  the  manufac- 
turers tend  to  become  advocates  of  free  trade."    Why? 

250.  ii.     The  representatives  of  the  national  automobile 
chamber  of  commerce  suggested  before  the  House  Ways  and 
Means  Committee  in  December,  1920,  that  the  duty  on  high- 
priced  foreign  cars  be  reduced  from  45  per  cent  to  30  per 
cent.     They  argued  (i)  that  government  revenue  would  be 
increased;  (2)  that  foreign  discrimination  against  American 
automobiles  would  be  less  likely;  and  (3)  that  foreign  in- 
dustry would  be  assisted  in  reviving.     Which  of  these  argu- 
ments is  the  more  significant?    Are  they  sound? 

251.  12.     If  protection  should  be  removed  from  a  highly 
specialized  industry  that  has  long  enjoyed  protection,  what 
would  tend  to  be  the  immediate  effect  upon  the  wages  of 
unskilled  laborers  employed  therein?    The  long  time  effect? 
Upon    the   wages   of    highly    trained    specialists    employed 
therein  ? 

252.  13.     An  English  pamphlet  of  the  Liberal  party  says: 
"One  of  the  most   absurd   posters   issued   by  the   British 
advocates  of  a  protective  tariff  was  one  in  which  a  British 
workingman  was  represented  as  saying:    The  foreigner  has 
got  my  job/    That  poster  is  a  fraud.    Rather  we  should  say 
that  it  is  the  foreigner  who  provides  jobs  for  British  work- 
ingmen." 

Now,  broadly  speaking,  neither  of  these  statements  is 
sound.  The  number  of  jobs — the  amount  of  employment — 
would  probably  be  substantially  the  same  under  protection  as 
under  free  trade.  The  real  advantage  of  free  trade  lies 
elsewhere. 


FOREIGN  EXCHANGE  AND  TRADE  41 

a.  Support  the  contention  of  the  next  to  the  last 
sentence. 

b.  What  is  "the  real  advantage"  referred  to  in  the 
last  sentence? — T. 

253.  14.  "I  believe  in  free  trade;  but  I  believe  in  fair 
trade  still  more.  If  other  countries  will  not  let  us  sell  to 
them,  I  don't  believe  in  letting  them  sell  to  us." 

What  erroneous  notion  with  respect  to  the  reason  for 
letting  other  countries  sell  to  us  does  the  writer  of  the  above 
start  out  from? — T. 


VII.     THE  DISTRIBUTION  OF  WEALTH 

A.    DISTRIBUTION  AS  AN  ECONOMIC  PROBLEM 
Ely,  Ch.  XIX 

254.  i.     What  are  the  "two  kinds  of  distribution?"    Illus- 
trate.    What  does  the  business  man  usually  mean  by  dis- 
tribution? 

255.  2.     How  would  the  distribution  of  wealth  in  America 
tend  to  be  affected  by  the  imposition  of  a  protective  tariff 
on  sugar  ?    By  the  levy  of  a  sales  tax  as  a  substitute  for  the 
income  tax? 

256.  3.     "The  problem  of  distribution  is  merely  a  series 
of  price  problems/'    Do  you  agree?     Explain. 

257.  4.     Assume  that  on  a  certain  plot  of  land  one  man 
can  produce  60  bushels  of  wheat,  two  men  140,  three  men  240, 
four  men  330,  five  men  400,  six  men  450,  seven  men  480, 
eight  men  490,  and  nine  men  490. 

a.  What  is  the  point  of  diminishing  productivity? 

b.  How  many  men  will  the  owner  of  this  land  em- 
ploy?   Upon  what  will  this  answer  depend? 

c.  Construct  a  diagram  similar  to  Fig.  i,  page  391  to 
show  the  above  facts. 

258.  5.     a.     If  the  price  of  wheat  is  $2.00  per  bushel  and 
the  wages  of  farm  labor  $120.00  for  the  season,  how  many 
men  will  be  employed  on  the  above  land?     Explain. 

b.  If  the  price  of  wheat  should  rise  to  $2.50  per 
bushel  how  many  men  would  be  employed  if  wages  re- 
main as  before? 

43 


THE  DISTRIBUTION  OF  WEALTH  43 

c.     If  wages  should  rise  to  $150.00  while  the  price  of 
wheat  remained  at  $2.00? 

259.  6.     What  is  meant  by  the   marginal  laborer?    The 
marginal  product  of  labor?    Illustrate  by  using  data  from  the 
preceding  problem? 

260.  7.     What  profit  would  the  owner  of  the  above  land 
make  if  conditions  were  as   assumed  in  a  of  problem  5  ? 
b?    cf 

261.  8.     Approximately  what  sum  of  money  will  repre- 
sent the  marginal  product  of  agricultural  labor  in  your  State 
this    coming    season?      How    does    this    compare    with    the 
marginal  product  for  1918?    Compare  wages  for  these  two 
years. 

262.  9.     If  the  available  supply  is  such  that  a  farmer  is 
free  to  rent  as  much  land,  hire  as  many  tractors  and  imple- 
ments, and  engage  as  many  men  as  he  desires,  what  will 
determine  his  expenditure  in  each  of  these  lines  in  order  that 
he  may  realize  the  largest  possible  profit  ?    Explain. 

263.  10.     Illustrate  the  principle  stated  at  bottom  of  page 
396  by  reference  to  the  grocery  business.     By  reference  to 
the  manufacture  of  safety  razors.    What  conditions  may  pre- 
vent the  nice  adjustment  that  entrepreneurs  tend  to  make? 
Illustrate. 

264.  ii.     Explain  the  statement  in  the  text  that  "marginal 
productivity  is  at  the  same  time  the  cause  and  effect  of  wages, 
rent,  and  interest." 

265.  12.     In    the   transport    of    coal    from    Cleveland    to 
Detroit  can  Lake  Erie  be  said  to  be  productive?     Explain. 
Is  the  Ohio  river  productive?    Is  the  air  that  is  so  necessary 
to  the  operation  of  an  engine  productive?    The  coal  used  in 
the  engine? 

266.  13.     Show  that  one  may  be  very  productive  while  per- 
forming anti-social  services. 

267.  14.     "Each  one  tends  to  get  the  value  equivalent  of 


44     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

the  product  of  the  marginal  producer  of  his  class  or  group." 

a.  Show  that  this  is  true. 

b.  Show  that  this  does  not  have  ethical  significance. 

B.    WAGES 
Ely,  Ch.  XXI 

268.  I.     "The  wage  of  any  class  of  labor  is  set,  as  is  the 
price  of  wheat,  at  a  point  that  will  just  clear  the  market/' 
Is  this  true?     Discuss.     Compare  the  terms  marginal  pro- 
ductivity of  labor  and  marginal  utility  of  wheat. 

269.  2.     Name  two  lines  of  industry  in  one  of  \yhich  the 
demand  for  labor  is  more  elastic  than  it  is  in  the  other. 
Account  for  the  difference. 

270.  3.     Does  the  temporary  hardship  to  laborers  result- 
ing from  the  introduction  of  labor-saving  machinery  help 
to  account  for  the  existence  of  trade  unions?    Can  you  sug- 
gest any  way  of  relieving  labor  groups  who  would  suffer 
from  the  introduction  of  machinery  from  bearing  this  bur- 
den ?    Discuss. 

271.  4.     Who  is  normally  the  better  able  to  drive  a  good 
bargain,  the  man  who  has  a  commodity  for  sale  or  one  who 
has  labor  service  for  sale;  the  one  who  wishes  to  buy  labor 
service  or  the  one  who  wishes  to  sell  labor  service?  Explain. 

272.  5.     "The  increase  in  population  during  the  past  one 
hundred  years  disproves  the  Malthusian  theory  and  at  the 
same  time  shows  that  there  is  truth  in  it."    Explain. 

273.  6.     Formulate  the  argument  used  to  support  the  sub- 
sistence theory  of  wages.     What  difficulty  have  certain  re- 
formers had  to  face  in  connection  with  this  theory? 

274.  7.     How  does  a  high  standard  of  living  work  toward 
an  increase  in  wages? 

275.  8.     The  many  statements  which  labor  leaders  have 
made  since  the  close  of  the  war  to  the  effect  that  wages 
must  not  be  lowered  illustrate  what  point  in  the  text  ? 


THE  DISTRIBUTION  OF  WEALTH  45 

276.  9.     Just  how  does  it  come  about  that,  all  other  things 
being  equal,  the  occupation  that  is  agreeable  pays  a  lower 
wage  than  the  occupation  that  is  disagreeable?    Illustrate. 

277.  10.     Explain  how  it  is  that  the  earnings  in  the  skilled 
trades  are  kept  nearly  equal ;  the  returns  in  the  professions. 

278.  11.     Suggest  a  general  program  for  our  society  that 
would  tend  to  bring  about  a  much  greater  degree  of  equality 
in  the  returns  for  labor  service  than  now  prevails. 

C.    WAGES 
Clay,  Ch.  XVI 

279.  i.     List  the  various  reasons  why  an  increase  in  wages 
may  reduce  an  employer's  labor  cost. 

280.  2.     "In  order  that  laborers  may  get  the  value  equiva- 
lent of  their  marginal  product  it  is  not  necessary  that  they 
have  bargaining  power  equal'  to  that  of  the  employer.     It  is 
only  necessary  that  there  be  keen  competition  between  em- 
ployers." 

a.  Give  argument. 

b.  If  there  were  keen  competition  between  employers 
would  the  weaknesses  of  laborers  in  bargaining  that  Clay 
mentions    operate    to    the    disadvantage    of    laborers? 
Explain. 

c.  Is  there  keen  competition  between  employers  ? 

281.  3.     "The    labor    union    is    unamerican"      What    is 
meant?     Is  it  more  unamerican  than  an  employers'  associa- 
tion ?    Discuss. 

D.     WAGES  (Continued) 
Clay,  Ch.  XVII 

282.  i.     Formulate  the  exact  statement  of  the  wages  fund 
theory;  the  inexact  statement. 


46     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

283.  2.     How  was  the  wages  fund  theory  used  to  combat 
trade  unionism?     Explain. 

284.  3.     "Wages  depend  upon  the  number  of  laborers  in  a 
given  group."     To  what   extent   is   this   true?     What   de- 
termines the  number  of  laborers  in  a  given  group  ? 

285.  4.     Why  was  Caruso's  wage  higher  than  that  of  a  car- 
penter?    Why  does  Babe  Ruth  get  a  larger  wage  than  a 
surgeon?    Why  is  a  coal  miner's  wage  higher  than  the  wage 
of  a  ribbon  clerk? 

286.  5.     "Wages   tend   to   equal   the   laborer's   discounted 
marginal  product."    Explain  the  meaning  and  significance  of 
each  of  the  last  three  words  in  this  formula. 

287.  6.     Note  the  sentence  in  parenthesis  in  the  footnote 
on  page  304.     Does  Clay  correctly  state  the  "law"  to  which 
he  refers?    Explain. 

288.  7.     The  practice  of  many  arbitrators  in  recent  wage 
disputes  has  been  to  set  wage  rates  at  a  point  that  would 
enable  the  laborers  to  meet  the  "cost  of  living."     Can  it  be 
said  that  wages  set  in  this  manner  tend  to  equal  the  "dis- 
counted marginal  product"?     Discuss. 

289.  8.     If  the  basic  wage   in  the  coal   mining  industry 
should  be  set  at  $12.00  per  day,  show  that  the  "discounted 
marginal  product"  of  the  miners  would  tend  to  become  $12.00 
per  day. 

290.  9.     Clay  quotes  Mills  as  assuming  that  an  increase  in 
wages  must  check  the  accumulation  of   capital.     Give  the 
argument.    Point  out  the  fallacy  in  the  argument. 

E.    LABOR  PROBLEMS 
Ely,  Ch.  XXII 

291.  I.     "The  fundamental  reason  for  the  trade  union  is 
that  laborers  have  the  same  desires  and  interests  that  em- 
ployers have."    Develop  the  argument.    Is  it  sound  ? 


THE  DISTRIBUTION  OF  WEALTH  47 

292.  2.  "The  American  Association  of  University  Pro- 
fessors is  interested  in  salaries,  protection  against  unwar- 
ranted dismissal,  an  extension  of  faculty  control  over  uni- 
versity administration,  and  the  promotion  of  good  teaching 
and  sound  scholarship."  Assuming  this  to  be  a  correct  state- 
ment, show  the  points  of  similarity  of  purpose  between  this 
organization  and  labor  organizations. 

293-  3-  Under  what  conditions  is  it  to  the  advantage  of 
the  members  of  a  trade  union  to  extend  the  union  member- 
ship? Under  what  conditions  would  extension  of  member- 
ship be  disadvantageous?  Which  of  these  two  sets  of  con- 
ditions is  the  more  largely  prevalent  in  American  industry 
today  ?  Explain. 

294.  4.    According  to  The  Survey  magazine  of  April  30, 
1921,  the  New  Jersey  Chamber  of  Commerce  in  a  survey  of 
manufacturing    establishments    found    the    following    nine 
varieties  of  open  and  closed  shops: 

I.     The  non-union  shop. 

1.  Closed  anti-union  shop. 

2.  Preferential  anti-union  shop. 

3.  Open  non-union  shop  without  shop  committee. 

4.  Open  non-union  shop  with  shop  committee. 
II.     The  union  shop. 

5.  Open  indirect  union  shop. 

6.  Open  union  shop. 

7.  Preferential  union  shop. 

8.  Closed  union  shop  of  an  open  union. 

9.  Closed  union  shop  of  a  closed  union. 
Define  each  of  these  nine  types.    Why  are  the  terms  "open 

shop"  and  "closed  shop"  unsatisfactory? 

295.  5.    In  the  issue  of  Jan.  15,  1921,  The  Survey  published 
a  statement  by  the  Commission  on  Church  and  Social  Service 
of  the  Federal  Council  of  Churches.     This  statement  which 
was  very  similar  to  a  statement  made  by  the  Department  of 


48     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

Social  Action  of  the  National  Catholic  Welfare  Council  was 
in  part  as  follows : 

"The  relations  between  employers  and  workers 
throughout  the  United  States  are  seriously  affected  at 
this  moment  by  a  campaign  which  is  being  conducted  for 
the  "open  shop"  policy — the  so-called  'American  plan' 
of  employment.  These  terms  are  now  being  frequently 
used  to  designate  establishments  that  are  definitely  anti- 
union.  Obviously,  a  shop  of  this  kind  is  not  an  'open 
shop'  but  a  'closed  shop' — closed  against  members  of 
labor  unions.  .  .  .  Many  disinterested  persons  are  con- 
vinced that  an  attempt  is  being  made  to  destroy  the  or- 
ganized labor  movement.  Any  such  attempt  must  be 
viewed  with  apprehension  by  fair-minded  people/' 

Why  should  not  employers  advocate  a  "non-union  shop" 
rather  than  an  "open  shop"  if  they  wish  to  destroy  trade 
unionism?  Why  use  the  term  "American  plan?"  Why 
should  this  commission  view  with  apprehension  an  attempt  to 
destroy  the  unions? 

296.  6.     President  Grace  of  the  Bethlehem  Steel  Corpo- 
ration testified  in  December,  1920,  that  is  was  the  policy  of 
his  company  not  to  sell  steel  to  contractors  who  operate  union 
shops.    Is  this  policy  in  line  with  the  principles  of  the  "open 
shop?"    Discuss  the  social  advisability  of  this  policy. 

297.  7.     Show  that  the  time  lost  as  the  result  of  a  strike 
may  be  greatly  in  excess  of  the  time  lost  by  the  persons  on 
strike.     Estimate  the  number  of  persons  that  are  gainfully 
employed  in  the  United  States.    How  many  men  would  have 
to  be  idle  as  a  result  of  strikes  each  working  day  for  a  year 
to  make  the  time  lost  equal  the  time  lost  as  a  result  of  one 
holiday?     The  number  of  persons  unemployed  now   (May, 
1921)  is  variously  estimated  at  from  3,000,000  to  5,000,000. 


THE  DISTRIBUTION  OF  WEALTH  4^ 

How  many  days'  labor  would  need  to  be  lost  as  a  result  of 
strikes  in  order  that  the  loss  would  equal  the  loss  resulting 
from  the  unemployment  of  2,000,000  men  for  a  period  of 
two  months  ? 

298.  8.     How  can  men  be  prevented  from  striking  in  es- 
sential industries?    By  law?    How  enforce  such  a  law?    By 
the  power  of  public  opinion?     How  enlist  public  opinion? 
Must  wages,  hours,  and  working  conditions  appear  to  the 
public  to  be  equitable? 

299.  9.     Mr.  H.  B.  Endicott,  senior  member  of  the  Endi- 
cott- Johnson  shoe  manufacturing  company,  said  in  an  article 
in  the  New  York  Times  of  October  5,  1919,  relative  to  labor 
councils    within    industrial    establishments,    "I    do    not    see 
wherein  they  are  of  any  good.  ...  It  seems  to  me  that  the 
manager  of  the  plant  is  pretty  well  informed  as  to  what  are 
the  proper  hours,  wages,  and  conditions  of  labor.    The  fact 
that  he  has  to  have  a  council  sit  in  with  him  and  tell  him 
what  they  are  seems  to  prove  that  there  is  something  radically 
wrong.     If  he  is  seriously  interested  in  the  happiness  and 
well-being  of  his  men  he  will  do  the  right  thing  by  them 
irrespective  of  a  council  or  not."     Substitute  a  few  words 
to  make  this  a  statement  that  a  mediaeval  king  might  have 
made  when  discussing  the  advisability  of  having  a  parliament. 
Is  this  substitution  fair  to  Mr.  Endicott? 

300.  10.     Under  what  conditions  should  you  expect  in- 
dustrial  organization  to  be  despotic?    Democratic? 

301.  n.     Is  there  any  reason  to  believe  that  the  following 
will  tend  to  promote  industrial  democracy :    Educational  op- 
portunities for  the  masses  ?    Savings  banks  and  other  agencies 
that  encourage  thrift  ?    Prohibition  ?    The  exclusion  of  immi- 
grants ? 

302.  12.    The  paid  up  membership  of  the  American  Fed- 
eration   of    Labor    increased    from    1,946,347    in    1915    to 
4,178,740  in  1920.     What  factors  account  for  this  increase? 


50     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

F.     LABOR  LEGISLATION 
Ely,  Ch.  XXIII 

303.  i.     Argue  that  if  there  is  keen  competition  one  should 
expect  that  legislation  would  be  unwise  that  established  a 
legal  minimum  wage  at  a  point  above  the  competitive  wage, 
Argue,  also,  that  such  legislation  might  operate  to  raise  the 
productivity  of  the  laborers  to  a  point  above  the  former  wage. 

304.  2.     "An  industry  that  does  not  pay  a  living  wage  is 
parasitic  and  should  be  destroyed/'     Explain  what  is  meant. 
If  a  group  of  persons  are  able  to  produce  only  part  of  what 
is  necessary  for  their  support,  should  they  be  prohibited  from 
working?    Discuss. 

305.  3.     Contrast  the  principle  involved  in  employers'  lia- 
bility for  injuries  received  by  employees  with  that  involved  in 
workmen's  compensation  legislation. 

306.  4.     "Recent    labor   legislation    represents    a    marked 
change  in  thought."     Discuss. 

G.    THE  RENT  OF  LAND 
Ely,  Ch.  XX 

307.  i.     "The  rent  of  agricultural  land  is  determined  by 
subtracting  the  expense  of  production  from  the  value  of  the 
product."    a.     Construct  a  simple  formula  in  agreement  with 
this  statement. 

b.  Show  that  this  statement  is  not  inconsistent  with 
the  text. 

c.  Can  the  rent  of  all  land  that  is  used  productively 
be  found  by  finding  the  excess  of  the  selling  value  of 
the  product  over  the  expense  of  production?     Illustrate. 

d.  How   is  the   rental  value  of   residence  sites  de- 
termined ? 

308.  2.     If  the  price  of  potatoes  is  $1.10  per  bushel,  what 


THE  DISTRIBUTION  OF  WEALTH  51 

sum  would  be  paid  for  the  use  of  an  acre  of  land  that 
yielded  200  bushels  of  potatoes  at  an  average  cost  of  $1.00 
per  bushel  ? 

b.  Would  the  tendency  be  for  any  of  these  bushels  to 
cost  the  producer  $1.10?  Explain. 

309.  3.     a.     If  the  price  of  corn  is  95  cents  per  bushel, 
what  will  tend  to  be  the  cost  of  producing  corn  on  the  poorest 
land  that  is  being  cultivated  ?    Why  ? 

b.  What  will  tend  to  be  the  cost  of  production  at  the 
intensive  margin?  Upon  what  land  will  corn  be  grown 
at  the  intensive  margin  ?  Explain. 

310.  4.     If  the  market  rate  of  interest  is  such  that  land 
which  is  expected  to  neither  appreciate  nor  depreciate  in  value 
will  be  purchased  on  a  five  per  cent  basis,  what  would  be  the 
value  of  such  land  if  the  yearly  net  rental  is  $500?    $600? 
If  the  basis  of  capitalization  is  six  per  cent? 

311.  5.     If  the  rental  from  land  is  expected  to  increase 
will  the  per  cent  of  income  received  on  the  market  value  of  the 
land  be  equal  to  the  market  rate  of  interest?    Illustrate. 

312.  6.     If  land  income  is  capitalized  at  five  per  cent,  what 
will  be  the  effect  upon  the  value  of  a  parcel  of  land  if  a  tax 
of  $100  per  year  is  levied  upon  it?    Explain.    Why  is  it  that  a 
land  tax  cannot  be  shifted  to  the  consumers  of  the  products 
of  land? 

313.  7.     A  certain  piece  of  land  yields  20  bushels  of  wheat 
per  acre, — the  expenditure  per  acre  being  $10.     With  land 
on  the  margin  of  cultivation  yielding  10  bushels  for  the  same 
expenditure,  and  with  the  rate  of  capitalization  5  per  cent, 
what  value  would  an  acre  of  the  2O-bushel  land  tend  to  have 
when  there  was  a  tax  on  it  equal  to  80  per  cent  of  the  rent? 
Put  down  in  your  answer  each  step  in  the  solution,  and  ex- 
plain fully.— T. 

314.  8.     The  Farm  Management  Department  of  the  Iowa 
State   College   of  Agriculture  gathered   information   during 
the  fall  of  1920  which  showed  that  at  the  prices  current  on 


52      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

October  18,  1920,  three  farmers  out  of  five  would  lose  money 
on  their  wheat  and  nine  out  of  ten  would  lose  money  on  their 
oats.  The  total  cost  per  acre  of  producing  wheat  was  given 
as  $3578  of  which  $16.80  was  "land  charges."  A  similar 
amount  for  "land  charges'*  was  included  in  computing  the 
cost  of  producing  oats. 

a.  Show  that  the  inclusion  of  land  charges  in  these 
computations  amounts  to  circular  reasoning. 

b.  Show  that  if  the  rental  value  of  land  be  included 
as  a  cost  most  farmers  will  necessarily  make  only  costs — 
wages,  interest,  and  sufficient  profits  to  cover  risk.    What 
farmers    will    make    more    than    costs    including    land 
charges  ? 

315.  9.     Formulate  Henry  George's  argument.     Is  it  fair 
to  say  that  his  aim  was  to  "socialize  rent?"    What  is  meant 
by   the   statement   that   private   rights    have   prevented    the 
adoption  of  the  "single  tax?" 

H.     RENT 
Clay,  Ch.  XIX 

316.  i.     Construct  tables  to  show  the  facts  indicated  by 
the  diagrams  on  pages  330  and  331. 

317.  2.     "Our  prices  are  lower  than  the  prices  of  our  com- 
petitors because  we  do  not  have  to  pay  as  much  rent  as  they 
have  to  pay."    Is  this  good  economics  ?    Explain.     Would  a 
tenant-farmer  ever  make  a  similar  statement  ?    Discuss. 

318.  3.     "Rent  is  a  surplus."     Explain  the  meaning.     Is 
this  sound? 

I.     RENT  (Continued) 

Clay,  Ch.  XX 

319.  i.     What  is  the  definition  of  rent  that  Clay  uses  in 
this  chapter?     Discuss  the  advisability  of  defining  rent  in 
this  way. 


THE  DISTRIBUTION  OF  WEALTH  53 

320.  2.     The  fact  that  "the  supply  of  land  is  much  less 
under  the  control  of  man  than  the  supply  of  different  kinds 
of  labor  and  capital"  is  significant  in  explaining  the  process 
by  which  the  price  of  land  is  set   as  compared  with  the 
process  by  which  the  price  of  a  capital  good  is  set.    Explain. 

321.  3.     If  land  taxes  should  be  materially  increased  would 
the  production  of  wealth  be  affected?    Explain.    Are  other 
taxes  similar  to  the  land  tax  in  this  respect?    Explain. 

322.  4.     "The  attitude  of  society  toward  land  investments 
which  has  prevailed  in  the  past  would  make  the  confiscation 
of  land  rent  very  inequitable  at  the  present  time."     Discuss. 

J.    INTEREST 
Ely,  Ch.  XXIV 

323.  I.     "Interest  can  be  paid  because  the  utilization  of 
capital  increases  the  value  of  the  product;  the  value  of  the 
product  is  increased  because  capital  is  limited  (scarce)  ;  cap- 
ital   is   limited   because   its    production   involves   a   sacrifice 
—waiting."      Is    this    statement    in    line    with    the    text? 
Explain. 

324.  2.     Ely  stresses  the  point  that  value  productivity,  not 
merely  physical  productivity,  is  necessary  if  payment  is  to  be 
made  for  the  use  of  capital.    Could  a  similar  point  be  made 
in  regard  to  payment  for  the  use  of  labor?     Is  there  any 
difference  between  the  two   payments   from  this   point   of 
view?    Discuss. 

325.  3.     What  does  Ely  mean  by  marginal  waiting?    Ac- 
cording to  his  analysis  what  would  be  the  effect  upon  the 
supply  of  capital  if  the  rate  of  interest  should  fall?    Why? 
If   it   should   rise?     Why.     Draw   a  diagram  to   illustrate. 
Does  this  agree  with  Clay's  analysis,  page  325  ? 

326.  4.     What  is  a  replacement  fund?     Is  it  necessary  to 
save  in  order  to  have  such  a  fund  ?    Explain. 

327.  5.     Is  saving  involved  in  the  making  of  an  ax? 


54      PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

328.  6.     How  could  capital  be  shifted   from  the  railway 
industry  to  ship  building?     From  the  carriage  to  the  auto- 
mobile industry? 

329.  7.     Explain  carefully  the  two  points  made  in  the  last 
sentence  of  the  paragraph  at  the  top  of  page  512.    Illustrate. 

330.  8.     What  would  be  the  long-time  effect  upon  the  net 
income  from  houses  if  all  houses  were  subjected  to  a  special 
tax  upon  their  value?     Upon  the  net  income  from  land  if  a 
tax  were  imposed  upon  land  value?    Explain. 

331.  9.     Name  two  investment  securities  that  are  selling 
on  the  market  to  yield  different  rates  of  return.     Account 
for  the  difference. 

K.     PROFITS 
Ely,  Ch.  XXV 

332.  i.     Give  several  illustrations  of  the  two  methods  of 
getting  profits.    Are  profits  in  these  cases  due  to  the  absence 
of  keen  competition?    Explain. 

333.  2.     A  retailer,  after  paying  all  expenses  for  the  year, 
has  a  balance  to  his  credit  of  $2,500.    Under  what  conditions 
should  part  of  this  amount  be  called  profit?     None  of  it? 

334.  3.     Give  the  argument  to  prove  that  it  is  socially  ad- 
vantageous to  allow  individuals  to  reap  profits.     Show  that 
profit  seeking  does  not  always  advance  social  welfare.     Why 
doesn't  it? 

L.    INTEREST  AND  PROFITS 
Clay,  Ch.  XVIII 

335.  I.     A  grocer  has  $4,000  "profits"  as  the  close  of  the 
year.     Under  what  conditions  could  this  amount  be  divided 
as  follows :    $2,500  wages  of  management,  $500  interest,  and 
$1,000  profit? 


THE  DISTRIBUTION  OF  WEALTH  55 

336.  2.     Just  what  is  the  author's  position  in  regard  to 
whether  the  rate  of  interest  corresponds  to  marginal  saving? 

337.  3.     If  the  wages  of  unskilled  labor  should  be  $2.00 
per  day  and  the  rate  of  pure  interest  4%  for  a  long  period 
of  time,  what  changes  would  tend  to  take  place  if  wages 
should  rise  to  $3.00  per  day?     If,  instead,  the  rate  of  interest 
should  rise  to  5%  ?    Explain. 

338.  4.     If  the  cost  of  building  a  mile  of  macadam  road  is 
$6,500,  a  mile  of  concrete  road  $12,000,  and  a  mile  of  brick 
road  $18,000;  and  if  the  annual  cost  per  mile  of  keeping  the 
roads  in  good  repair  is  $600  for  the  macadam  road,  $300  for 
the  concrete,  and  $50  for  the  brick,  which  road  will  be  the 
most  economical  when  the  current  rate  of  interest  is  2  net 
cent?     When  it  is  4  percent?     5  per  cent?     6  per  cent? 
10  per  cent? — (Parry.) 

339-5-  "Labor  alone  should  enjoy  the  products  of  in- 
dustry, for  labor  alone  is  responsible  for  the  product.  This 
is  obvious  when  we  realize  that  if  labor  were  not  applied  all 
the  capital  in  the  world  could  not  produce  anything." 

a.  Does  the  truth  of  the  last  statement  prove  the 
second  clause  in  the  first  sentence  to  be  true?     What 
logical  fallacy  is  involved  in  the  quotation? 

b.  Write  an  analogue  to  the  above  in  which  labor  and 
capital  are  made  to  change  places.— T. 

M.    THE  PERSONAL  DISTRIBUTION  OF  WEALTH 
Ely,  Ch.  XXVI 

340.  i.  Among  the  methods  of  receiving  income  or  ac- 
cumulating wealth  which  have  been  criticized  are  the  follow- 
ing: inheritance,  land  ownership,  ownership  of  capital  goods, 
monopoly.  Discuss  the  advisability  of  allowing  individuals 
to  receive  incomes  from  these  sources. 


56     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

341.  2.     "It  should  be  as  difficult  by  sitting  still  to  add  a 
penny  to  one's  income  as  it  is  by  taking  thought  to  add  a 
cubit  to  one's  stature."    Clay,  p.  379.    Do  you  agree?    If  so, 
what,  if  anything,  should  be  done  to  prevent  persons  from 
receiving  incomes  "by  sitting  still?" 

342.  3.     Is  it  to  the  advantage  or  to  the  disadvantage  of 
others  if  one  accumulates  a  fortune?    Discuss  fully. 

343.  4.     Consider  the  six  methods  by  which  Ely  suggests 
that  the  inefficient  members  of  society  may  be  eliminated  or 
strengthened.    Which  of  these  is  the  most  important?    The 
least  important?    To  which  one  are  we  giving  the  most  at- 
tention today?    The  least  attention? 


VIII.     SELECTED  ECONOMIC  PROBLEMS 

A.    TRANSPORTATION 
Ely,  Ch.  XXVII 

344.  i.    Just  how  is  it  that  efficiency  in  transportation 
promotes  national  prosperity? 

345.  2.     Account  for  the  fact  that  we  insisted  for  so  long 
on  having  competition  in  the  railway  industry.     Why  has 
it  been  impossible  to  maintain  competition?     Why  has  the 
failure  of  competition  meant  that  we  must  have  government 
regulation  ? 

346.  3.     "The  fact  that  railway  service  is  subject  to  de- 
creasing cost  has  made  public  regulation  of  rates  more  im- 
perative than  it  would  otherwise  have  been."     Explain. 

347.  4.     Enumerate  the  principal  costs  which  a  railroad 
has  to  meet.     How  are  these  various  items  of  cost  affected 
by,  say,  a  10  per  cent  increase  in  traffic?    How  would  divi- 
dends be  affected  by  such  an  increase  in  traffic  if  rates  re- 
mained as  before?     Is  it  possible  that  dividends  can  be  in- 
creased by  charging  a  special  low  rate  for  this  additional 
traffic? 

348.  5.     Why  may  we  expect  that  ''rates  will  doubtless 
continue  to  be  based  to  a  very  large  degree  on  the  principle 
of  'charging  what  the  traffic  will  bear  ?' " 

349.  6.     Account  for  the  fact,  as  shown  in  the  table  on 
page  565,  that  the  receipts  per  ton-mile  for  shipping  cotton 
in  the  Eastern  District  were  only  about  one-fourth  of  the 

57 


58     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

receipts  per  ton-mile  for  the  Southern  District.  Account  for 
the  difference  in  receipts  per  ton-mile  between  anthracite  and 
bituminous  coal. 

350.  7.     Show  that  it  may  be  to  the  advantage  of  the 
people  living  near  the  Mississippi  River  to  have  the  railroads 
charge  less  for  transporting  goods  from  New  York  to  San 
Francisco  than  for  similar  shipments  from  the  Mississippi 
River  to  San  Francisco. 

351.  8.     "The  Standard  Oil  Company  entered  into  a  con- 
tract with  a  railroad  under  which  the  railroad  was  to  charge 
it  only  10  cents  a  barrel  for  transporting  its  oil  while  charging 
other  companies  35  cents  for  the  same  service,  and  was  to 
pay  to  it  25  cents  of  the  excessive  charge  imposed  upon  its 
competitors." — Seager,  page  439. 

a.  Estimate  the  advantage  that  this  gave  to  the  Stand- 
ard Oil  Company. 

b.  Were  the  officers  of  this  company  guilty  of  moral 
turpitude  in  making  such  a  contract?    Were  the  officers 
of  the  railroad? 

c.  Why  should  the  railroad  have  been  willing  to  enter 
into  such  a  contract? 

352.  9.     "The  law  does  not  attempt  to  prohibit  a  merchant 
from  selling  to  different  individuals  at  different  prices  or  even 
from  giving  away  his  wares.    Then  why  should  the  railroads 
be  so  hedged  about  by  legal  prohibitions  upon  the  prices  to 
be  charged?"    Discuss. 

B.     INSURANCE 
Ely,  Ch.  XXVIII 

353.  I.     "The  increasing  utilization  of  insurance  means  a 
greater    degree    of    cooperation."      Is    this    true?      Discuss 
Name  several  relatively  new  kinds  of  insurance. 


SELECTED  ECONOMIC  PROBLEMS  59 

354.  2.  What  is  the  social  advantage  of  insurance?  It 
has  been  proposed  that  the  insurance  of  business  men  against 
failure  to  realize  profits  should  be  encouraged.  Do  you  con- 
sider this  advisable?  Discuss. 

355*  3-  "There  is  as  much  reason  for  carrying  endow- 
ment insurance  on  one's  house  as  on  one's  life."  Do  you 
agree  ?  Explain. 

356.  4.  Discuss  the  possible  effects  of  social  insurance 
upon  wages. 

C.    AGRICULTURAL  PROBLEMS 
Ely,  Ch.  XXIX 

357-  i.  Why  did  the  value  of  farm  land  increase  pro- 
portionately so  much  more  than  the  value  of  buildings  and 
implements  and  machinery  during  the  first  decade  of  this 
century?  May  we  expect  this  difference  in  increase  in  value 
to  continue? 

358.  2.     Why  may  we  expect  that   our   agricultural  in- 
dustry will  be  neither  predominately  intensive  nor  predomi- 
nately extensive? 

359.  3.     Discuss  the  effect  of  the  Federal  Land  Banks  on 
land  value. 

360.  4.     Argue  that  the  presumption  is  that  the  farmer  is 
not  treated  unfairly  when  selling  his  crop. 

361.  5.     The  monthly  circular  of  the  National  City  Bank 
in  the  February,  1921,  issue,  gives  the  following  data: 

Column  One  gives  the  average  monthly  prices  for  the  ten- 
year  period,  1901-1910,  of  cash  wheat  in  Chicago. 

Column  Two  gives  the  average  farm  prices  for  wheat  on 
the  first  of  each  month,  19101919. 

Column  Three  gives  the  per  cent  of  wheat  marketed  by 
United  States  farmers  in  different  months. 


60     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

Months :                                     One  Two 

1901-10  1910-19  Three 

July     93.10  $1.27.8  12.6% 

August    92.10  1.28.9  14.9% 

September  92.70  1.28.4  16.8% 

October     92.30  1.28  14.6% 

November    91.10  1.31.1  10.9% 

December    93.30  1.30.2  7.8% 


Average  price  for  six  months,  78% 

July-December 92.40  $1.29 

January     91.20  $1.20.5  57% 

February    93.50  1.26.4  4.6% 

March     92.80  1.25.6  3.3% 

April     92.30  1.27.1  3.5% 

May     95.60  1.37.2  3    % 

June    95.70  1.36.5  2.3% 

Average  price  for  six  months,  22% 

January-June    93.50  $1.29 

During  which  months  was  it  most  profitable  for  a  farmer 
to  sell  wheat  during  1901-10?  1910-19?  What  was  the 
middleman  who  purchased  wheat  in  the  fall  and  held  it  until 
spring  paid  for  his  services  during  each  of  these  decades? 
Do  the  speculators  depress  the  price  when  the  farmer  is 
marketing  the  bulk  of  his  crop  and  boost  the  price  after  he 
has  sold  ? 


D.     SOCIALISM 
Ely,  Ch.  XXX 

362.  I.     "Syndicalism  is  more  related  to  anarchism  than  to 
socialism."     Explain. 

363.  2.     Is  our  public  school   system  a  socialistic  enter- 
prise?    Our  postal  system?     Is  all  government  regulation 
socialistic?     Compare  the  extent  of  government  regulation 
today  with  that  of  20  years  ago;  with  that  of  70  years  ago. 


SELECTED  ECONOMIC  PROBLEMS  61 

Are  we  likely  to  have  more  government  regulation  in  the 
future  than  we  have  now,  or  less?    Discuss. 

364.  3.     List  the  facts  that  may  account  for  one's  being  a 
socialist. 

365.  4.    Why  is  the  socialist  party  so  weak  in  the  United 
States? 


IX.    PUBLIC  FINANCE 

A.    PUBLIC  EXPENDITURE 

Ely,  Ch.  XXI 

366.  i.     "Public  finance  has  become  the  central  fighting 
place  for  social  reform."     Explain  and  illustrate. 

367.  2.     Should  we  expect  an  increase  or  a  decrease  in 
public    expenditures    during    the    next    twenty-five    years? 
Why? 

368.  3.     The  expenditures  of  our  national  government  for 
1920,  which  were  approximately  $4,000,000,000,  have  been 
analyzed  as  follows:     68%  for  past  wars,  25%  for  future 
wars,  6%   for  executive,   legislative,  and  judicial  purposes, 
and  i  %  for  education.    This  analysis  bears  upon  what  points 
in  the  text?    Discuss. 

.    B.    PUBLIC  RECEIPTS  FROM  LOANS  AND  GOVERNMENT 
OWNERSHIP 

Ely,  Ch.  XXII 

369.  i.     "In  1818  the  United  States  gave  a  square  mile  of 
land  in  downtown  Chicago  to  the  State  of  Illinois  for  educa- 
tional purposes.     The  rent  from  this  today  would  be  suf- 
ficient to  support  the  entire  school  system  of  the  State  of 
Illinois  without  an  additional  dollar  of  taxation."     Discuss 
the  advisability  of  the  State's  having  kept  this  land. 

370.  2.     "Henry  George's  scheme  is  much  more  advisable 
in  cities  than  in  the  country."    Do  you  agree  ?    Discuss. 

62 


PUBLIC  FINANCE  63 

371.  3.     "Increase  in  land  value  may  be  earned  through 
purchase  just  as  present  rents  may  be  so  earned/'     Explain. 
What  limitations  does  this  place  upon  increment  taxation  if 
we  would  avoid  confiscation  of  land  value?    Suggest  a  plan 
for  taxing  the  increase  in  land  value  that  will  not  confiscate 
any  of  the  present  value. 

372.  4.     "The  argument  in  favor  of  free  street  car  service 
is  far  stronger  than  might  be  expected  at  first  thought."    De- 
velop the  argument. 

373-  5-  "The  entire  question  (of  the  government's  taking 
over  certain  activities)  turns  upon  the  choice  of  the  means 
of  satisfying  certain  common  collective  wants."  Explain. 
What  elements  will  influence  choice  in  this  matter? 

C.     PUBLIC  RECEIPTS:  DERIVATIVE  REVENUES,  FEES, 
SPECIAL  ASSESSMENTS,  AND  TAXES 

Ely,  Ch.  XXXIII 

374.  i.     "The  fee  system  is  bad  when  the  fees  are  retained 
as  salary  by  the  officer  collecting  them."     Is  this   sound? 
Discuss. 

375.  2.     "We  cannot  have  more  than  approximate  justice 
in  taxation."    Explain  and  illustrate. 

376.  3.     Give  an  illustration  of  a  tax  levied  according  to 
ability ;  one  levied  not  according  to  ability. 

377.  4.     Is  there  any  way  by  which  we  can  determine  the 
relative  tax  paying  abilities  of  a  person  with  an  income  of 
$4,000  and  one  with  an  income  of  $400,000?     Discuss. 

378.  5.     "The  shifting  of  taxes  is  a  price  phenomenon. 
Shifting  takes  place  only  because  of  a  withholding  of  sup- 
ply."   Do  you  agree?    Discuss  and  illustrate. 

379.  6.     If  the  tax  upon  land  and  improvements  (levied  ac- 
cording to  value)  should  be  considerably  increased,  what  effect 
would  this  tend  to  have  upon : 

(a)     The  rental  charged  for  land?    Why? 


64     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

(b)  The  rental  charged  for  houses?    Why? 

(c)  The  selling  price  of  land?    Why? 

(d)  The  selling  price  of  houses?    Why? 

380.  7.     "The  purchaser  of  land  after  the  imposition  of  a 
land  tax  buys  free  of  a  tax  burden/*    Why  is  this  thought 
to  be  true?     Would  it  be  true  if  land  alone  were  taxed? 
Is  it  true  if  land  is  only  one  among  many  objects  that  are 
taxed  ?    Explain. 

381.  8.     Argue  that  a  tax  on  excess  profits  is  not  shifted. 

D.    PUBLIC  RECEIPTS:  FEDERAL,  STATE,  AND  LOCAL  TAXES 
Ely,  Ch.  XXXIV 

382.  i.  List  the  meritorious  features  of  the  federal  in- 
come tax.  Has  it  any  objectionable  features?    Explain. 

383.  2.  May  we  expect  an  increased  use  of  inheritance 
taxation  in  our  fiscal  system  ?    Discuss. 

384.  3.  Why  does  the  general  property  tax  foster  dis- 
honesty ? 

385.  4.  Just  what  is  double  taxation?    Illustrate. 


X.    A  CRITIQUE  OF  THE  PRESENT  ECONOMIC 

SYSTEM 

A.    THE  STATE  AND  THE  ECONOMIC  ORGANIZATION 
Clay,  Ch.  XXI 

386.  i.     "We  regulate  the  cooperation  of  the  various  in- 
dividuals of  our  society  largely  by  competition/'    Explain. 

387.  2.     Just  why  is  it  that  we  cannot  rely  exclusively  upon 
competition  as  a  regulator  of  our  economic  activity?     Ex- 
plain and  illustrate. 

388.  3.     "The  problem  of  taxation  will  become  more  and 
more  important  as  the  state  has  to  assume  a  larger  share  in 
the    regulation    of    economic    activity."      Is    this    sound? 
Discuss. 

389.  4.     Suggest   taxes   that    would   tend   to   reduce   ef- 
ficiency; that  would  not  have  this  effect. 

B.    THE  STATE  AND  THE  ECONOMIC  ORGANIZATION 
(Continued) 

Clay,  Ch.  XYII 

390.  i.     Construct  a  popular  argument  which  you  have 
heard,  or  which  might  be  given,  upon  some  point  in  eco- 
nomics that  is  based  upon  the  first  of  these  four  assumptions ; 
the  second ;  the  third ;  the  fourth. 

391.  2.     Cite  cases,  from  your  experience,  of  persons  who 
have  not  acted  in  accordance  with  their  economic  interests. 

65 


66     PROBLEMS  AND  EXERCISES  IN  ECONOMICS 

392.  3.     List  the  qualities  that  are  essential  to  marked  suc- 
cess   in    business.     Are    all    of    these    estimable    qualities? 
Explain. 

393.  4.     What  is  meant  by  the  statement,  "Some  property 
is  functionless."     Illustrate. 

394.  5.     Is  most  economic  activity  a  social  service?     Dis- 
cuss. 

395.  6.     Does  market  value  for  the  most  part  direct  the 
economic  forces  to  the  tasks  that  are  most  important  so- 
cially?    Discuss. 

396.  7.     Does  the  i8th  amendment  restrict  the  operation  of 
market  value  as  a  social  guide?     Explain. 


C.     WEALTH  AND  WELFARE — THE  MEASURE  OF  WEALTH 
Clay,  Ch.  XXIII 

397.  i.     Make  an   estimate   of   the   part  of   our   annual 
product   that    is    "illth."     Is    the   proportion    of    "illth"    to 
"wealth"  increasing  or  decreasing?    Discuss. 

398.  2.     How    could    we   ascertain    the    net    contribution 
which  wealth  makes  to  welfare? 


D.    WEALTH   AND   WELFARE — ECONOMIC   INFLUENCES   ON 

WELFARE 

Clay,  Ch.  XXIV 

399.  i.  "In  those  classes  of  our  society  in  which  social 
worth  is  measured  by  a  pecuniary  standard  it  is  impossible 
for  any  one  to  be  happy/'  Do  you  agree?  Do  we  in  general 
make  our  decisions  as  to  the  desirability  of  "knowing"  certain 
persons,  on  the  basis  of  their  economic  position?  Is  there 
much  of  what  has  been  called  "conspicuous  consumption?" 


THE  PRESENT  ECONOMIC  SYSTEM  67 

Is   the   pecuniary   ideal   at  all  productive   of   social   good? 
Discuss. 

400.  2.     What  can  we  do  to  get  people  to  desire  the  kinds 
of  satisfaction  that  will  promote  welfare? 

401.  3.     Give  several  illustrations  of  the  sacrifice  of  the 
producer  to  the  product. 

402.  4.     "Trade  unionism  restricts  output/'    If  this  is  true 
does  it  follow  that  it  is  undesirable  to  have  trade  unions? 
Discuss. 

4°3»  5-  "Work  is  an  end  as  well  as  a  means  to  an  end." 
Cite  cases  in  which  this  is  true ;  cases  in  which  it  is  not  true. 
Which  class  of  cases  is  the  more  common?  Discuss. 

E.    WEALTH  AND  WELFARE — BUSINESS  AND  MORALITY 
Clay,  Ch.  XXV 

404.  i.     Do  you  agree  with  the  suggestion  of  the  author 
that  the  civilization  of  Chicago  is  inferior  to  the  civilization 
of  Athens?    Discuss. 

405.  2.     "The  laissez-faire  philosophy  is  very  largely  an- 
archistic."   Explain.     In  what  respects  is  it  not  anarchistic? 

406.  3.     "The  policy  of  laissez-faire  is   based   upon  the 
same  social  philosophy  as  the  policy  of  'free  love/ '     Is  this 
true?    Discuss. 

407.  4.     Within    what   limits    or    under    what   conditions 
would  welfare  vary  directly  with  wealth? 

408.  5.     What  is  the  most  effective  thing  that  you  can  do 
to  make  our  economic  society  more  ideal?    Suggest  a  general 
program  that  would  tend  to  improve  our  economic  society. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
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AUG  31   1932 


13  1934 


7  1935 


16 


1935 


1936 


APR  19 


APR    11  1938 


MAY  18  1940 


7Ji 


LD  21-20m-6,'32 


Binder 

" ******.  Inc. 

3  T  f   P       °n' 

T-M-^.u.s. 


I D    UU  I  i  \ 


